Under Trump, the machinery of trade enforcement still works

Under Trump, the machinery of trade enforcement still works
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As President TrumpDonald John TrumpFamily says Trump travel ban preventing mother from seeing dying son Saudi Arabia rejects Senate position on Khashoggi killing Five things to know about the Trump inauguration investigation MORE affirmed his “America first but not alone” message in Davos last week, something unexpected happened: The International Trade Commission ruled unanimously that Boeing faced no injury at the hands of a Canadian firm, Bombardier, the maker of a new line of passenger planes.

Commerce Secretary Wilbur RossWilbur Louis RossReplacing unpopular steel tariffs with quotas is even worse for US energy Judge refuses to pick sides in Census dispute, schedules trial Ross: I don't know who started 'rumor' about travel warning for China MORE, one of the administration’s stalwart advocates for using trade remedies more aggressively to protect U.S. interests, acknowledged that the vote ”shows how robust our system of checks and balances is.”

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The ITC decision and Ross’s statement are particularly important as global elites worry the U.S. is turning inward and becoming a less reliable trading partner. In his State of the Union address, the president insisted that “reciprocity” will underpin negotiations on trade deals. However, by definition, trade agreements are based on reciprocity. In fact, many deals completed in recent years required countries with access to the U.S. market to open their markets to U.S. goods and services. While the Trump administration’s more rigorous definition of the word that will color the U.S. position in the global marketplace, the Boeing-Bombardier dispute illustrates that settling inevitable trade frictions will continue to rely on a rigorous and painstaking review of facts.

 

Last spring, the ITC investigated Boeing’s claims that Canada violated trade rules by providing generous subsidies to Bombardier, thereby enabling the Montreal-based company to sell 75 of its new C Series planes to Delta Airlines at below cost. Boeing said this act of alleged dumping posed a threat to its ability to compete in the market for small planes suited for regional operations.

At first, the ITC was sympathetic to Boeing’s petition and agreed in its preliminary decision that tariffs of almost 300 percent were justified.[i] But as the full record of facts was presented and studied, Boeing’s claim that its smaller passenger planes compete directly with the C Series was not persuasive. Boeing has been upfront in its decision about a decade ago to back away from this market segment and to focus on going head to head internationally with Europe’s Airbus for large passenger planes. It did not even bid for Delta’s business. Its 737 class of planes are too large. The C Series, on the other hand, has been hailed as a breakthrough for efficient operation and passenger comfort.

Far from being a beleaguered company struggling to survive in a crowded, dog-eat-dog market, Boeing is a formidable global company. The ITC could not ignore the fact that Boeing has some 5,000 back orders for its 737 models that will require expanded production capacity. Therefore, even if Boeing’s 737s did compete directly with the C Series, Boeing has more demand for this model than it can handle. Hence, Boeing is no more likely to be injured by the C Series than Vikings quarterback Terry Bridgewater is likely to be hurt in this weekend’s Super Bowl.

Nor could the ITC ignore the fact that, in the midst of its investigation, Bombardier announced it would partner with Airbus to fill hoped-for U.S. orders for the C Series in Alabama, rather than in Canada. Bombardier already employs thousands of U.S. workers directly or indirectly, just as Boeing employs thousands of workers at facilities around the world. This is the essence of the cooperative spirit in today global marketplace that aims to minimize trade frictions. The Airbus deal would create additional U.S. jobs. As the president made clear in his State of the Union, that is his bottom line.

Perhaps most importantly, it became increasingly clear that Boeing sought to conceal the fact that it had been in talks to acquire Brazil’s Embraer during the ITC’s investigation. That explains why Boeing’s petition was aimed squarely at Bombardier and designed to exclude Embraer planes. Boeing seems to have been planning all along to get back into the smaller passenger plane market. Initiating a trade dispute looked increasingly like a ploy to sideline Bombardier long enough for the Embraer deal to be finalized. The ITC rightly concluded that it would not be part of misuse of trade laws.

The ITC’s decision came the same week as the announcement that the U.S. would slap import duties on residential washing machines made by Korea’s Samsung and LG, and solar panels made in China. Free traders warned this was a dangerous sign the U.S. was embracing protectionism. On the other hand, the tariffs on solar panels were not as onerous as U.S. companies sought, suggesting the trade remedy process indeed has “checks and balances.”

The judicious use of trade remedies often benefits domestic workers and companies. Their overuse tends to create more harm than good, and their abuse is often nothing more than crony capitalism. In the Boeing-Bombardier case, the ITC showed it understands these distinctions. It is reassuring to know that the president’s more robust approach to protecting U.S. interests relies on an equally robust process for investigating the claims of U.S. companies.

John Burnett is the founder and CEO of 1 Empire Group, a consulting firm specializing in business analytics and development, operations, process re-engineering, growth strategies, risk management, and public affairs.