There’s been a lot of heated rhetoric from Washington in recent months aimed at two of America’s largest trading partners, China and Mexico.
China, by far our largest global trading partner, has been called out for restricting the access of U.S. firms to it huge market while running up a trade deficit with us that tops $500 billion annually. In recent weeks, the U.S. also has threatened to hit China with a full trade embargo it does not cut off its economic ties with the rogue regime in North Korea.
Mexico, our third-largest trading partner, has been cited as the primary culprit for the imbalance of trade resulting from the North American Free Trade Agreement. The U.S. says it will withdraw from NAFTA if Mexico doesn’t make significant concessions in the ongoing renegotiation of the 24-year-old hemispheric trade pact. Tariffs also have been cited as the most likely tool that would be deployed by the U.S. to exact payment–make that reimbursement–from Mexico for the cost of building a wall on our southern border.
But the first U.S. salvo in what may become a full-blown trade war wasn’t aimed at China or Mexico–it’s landed squarely on Canada, our friendly neighbor to the north and second-largest global trading partner, and the United Kingdom, our closest ally.
The Commerce Department announced this week that it is hitting Canadian aircraft-maker Bombardier with a hefty 220-percent tariff for its top-end passenger planes. The tariff follows the department’s preliminary finding in favor of Boeing’s complaint that Bombardier received unfair government subsidies. The complaint from the U.S. aerospace giant against its much smaller competitor caused great ire in Canada, which noted that Boeing is by far the largest beneficiary of financial support from the U.S. Import-Export Bank (backing that enables Boeing to compete for huge contracts in foreign countries against subsidized aircraft manufacturers).
Last week, Prime Minister Justin Trudeau threw down a goaltender-sized gauntlet when he threatened to cancel Canada’s purchase of F-35 fighter jets if the Commerce Dept. acted on Boeing’s behalf. [All NATO members, including Canada, have committed to purchasing F-35s, the next-generation fighters manufactured by a consortium led by Boeing.]
The new tariff, issued on Tuesday, is aimed at Montreal-based Bombardier’s 100- to 150-seat C-Series passenger jets, which compete with Boeing’s mainstay 737. The penalty also has drawn fire from the U.K, because Bombardier is one of Northern Ireland’s largest employers. About 1,000 jobs at the Belfast plant that are directly linked to the production of the C-Series wing could be lost, officials say.
Bombardier is calling the new tariff “absurd” and vowing to take the fight to the World Trade Organization. Boeing says it wants “a level playing field” in the U.S. market for single-aisle planes; it claims that a $1-billion bailout from the Quebec regional government and $149 million in development loans and other aid from the U.K. government in 2008 helped gave Bombardier an unfair advantage.
In June, the Commerce Department issued a preliminary ruling that Boeing may have been harmed by Bombardier, which Commerce says has been able to sell its plane in the U.S. at a substantial discount. Commerce said this week it will instruct U.S. Customs and Border Protection to collect cash deposits from importers of 100- to 150-seat large commercial passenger jets, but the ruling won’t become final until next year.
The first test of the new tariff could come next spring, when Bombardier is scheduled to deliver the first of 75 CS100 aircraft it has sold to Delta Airlines. Delta reportedly bought the jets for $19 million each; the new tariff would increase that price to an estimated $61 million per plane.
“The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” Commerce Secretary Wilbur Ross said in a statement. “The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”
The U.K.’s defense minister, Sir Michael Fallon, echoed Trudeau’s threat by warning that the new tariff could jeopardize the U.K.’s future relationship with Boeing, including billions of dollars in military contracts with Britain. British Prime Minister Theresa May said she was “bitterly disappointed” by the tariff ruling.
This could get very ugly, very fast.