Just days after the US Commerce Department imposed duties averaging 20% on Canadian softwood lumber, accusing Chinese timber companies of getting an unfair government subsidy, on Thursday round two of the trade war between the US and Canada broke out when Boeing asked the U.S. Commerce Department to investigate dumping, subsidies and unfair pricing for Canadian planemaker Bombardier's new CSeries airplane, a competitor to the Boeing 737, confirming that the trade tensions between the two neighboring countries are set to get far worse.
Specifically, the Chicago-based aerospace giant has asking the International Trade Commission to rule that it has suffered injury to its business at the hands of Bombardier and to recommend that the Commerce Department impose duties on the Canadian jet builder (amusingly, Boeing also complained about the very existence of Bombardier itself, a company which has been aggressively bailed out by the Canadian government as recently as October 2015, when in exchange for $2.5 billion in taxpayer funds, the company fired 7,000 Canadian workers).
In its petition, Boeing said that Bombardier, determined to win a key order from Delta Air Lines after losing a competition at United Airlines, had offered its planes to the airline at an "absurdly low" $19.6 million each, well below what it described as the aircraft’s production cost of $33.2 million. "Propelled by massive, supply creating and illegal government subsidies, Bombardier Inc has embarked on an aggressive campaign to dump its CSeries aircraft in the United States," Boeing said in its ITC complaint.
A comparable 737-700 model by Boeing has a list price of $83.4 million, with the new 737-MAX 7 priced at $92.2 million. While sales discounts from list prices are typically 40 percent to 50 percent in the industry, another question is just how much of that price is courtesy of the implicit taxpayer subsidy of the Ex-Im bank, but that is a topic for another post.
The spat between the two companies came to a climax in April 2016, whe Bombardier won the Delta order, its biggest yet, for 75 CS100 jets, worth an estimated $5.6 billion based on the list price of about $71.8 million. And now that Trump has given the green light to challenge Canadian trade competitors, Boeing is certainly not wasting time.
In its complaint against Bombardier, Boeing argued that the CSeries program would not exist without hundreds of millions of dollars in launch aid from the governments of Canada, Quebec and Britain, nor the abovementioned $2.5 billion equity infusion from Quebec in 2015.
Boeing wasn't finished: the company also took a shot at European rival Airbus, which it accuses of benefiting from similar "unfair" government subsidies in a long-running dispute before the World Trade Organization.
“Evidently taking a page out of the Airbus strategy book, Bombardier has blatantly and intentionally demonstrated its goal of muscling its way into the U.S. aviation market by offering its heavily subsidized planes at cut-rate pricing,” Boeing said.
A Commerce Department spokesman told Reuters that the petition would be given "a thorough review" and further comment was premature.
In recent week, Commerce Secretary Wilbur Ross has taken swift action to protect the U.S. steel and aluminum industries from foreign competition, launching national security investigations that could lead to import restrictions. An investigation could lead to duties on the aircraft to offset any below-cost pricing or any subsidies deemed unfair.
Shortly after the complaint was filed, the Canadian government issued a statement objecting to Boeing's allegations and noted that the CSeries has many U.S. suppliers, including for engines, and supports thousands of U.S. jobs. "The Government of Canada will mount a vigorous defense against these allegations and stand up for aerospace jobs on both sides of the border," it said. Full statement below:
The Government of Canada today made the following statement regarding the filing of a petition by Boeing Aerospace Corporation with the United States Department of Commerce, alleging the dumping of Bombardier aircraft in the United States market:
"The Government of Canada objects to the allegations made by Boeing. We are confident that our programs are consistent with Canada's international obligations.
"The aerospace industries of Canada and the United States are highly integrated and companies on both sides of the border benefit from this close partnership. For example, many C Series suppliers are based in the United States and it is projected that more than 50 percent of the components for the C Series, including the engine, will be supplied by American firms directly contributing to high quality jobs in that country. The C Series is a great example of how the North American industrial base can develop and produce a globally competitive product with industry-leading clean technologies.
Bombardier also has a significant presence in the U.S. across its aerospace and transportation divisions, directly employing more than 7,000 workers. In addition, the company works with more than 2,000 suppliers headquartered in states across the country thereby generating thousands of well-paid, high-tech American jobs.
"The Government of Canada will mount a vigorous defence against these allegations and stand up for aerospace jobs on both sides of the border."
Curiously, Bombardier’s chief executive conceded the company had been “aggressive” on pricing in order to win, and sources familiar with the deal pegged the discount closer to two-thirds off the nominal list price. It added that it was reviewing the petition and structures its dealings to ensure compliance with all relevant laws.
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In a separate development, Premier Christy Clark of British Columbia, wrote a letter to Canadian Prime Minister Justin Trudeau Wednesday asking him to ban coal shipments from the U.S., sending shares of US coal giant Cloud Peak Energy (among others) tumbling. According to Bloomberg, Clark's demand was in response to Trump's lumber tariffs. Trudeau said he would consider the request "carefully and seriously." Some context: a little over 6 million metric tons of U.S. thermal coal were shipped through the port of Vancouver in 2016.
Needless to say, it would be especially absurd if as a result of Trump's Canadian tariffs, it is the US coal mining industry - the one which the president vowed to reincarnate - that suffers the most.
And now, we sit back and wait for round three in the increasingly hostile trade wars between the US and its peaceful northern neighbor.