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Comment by jaytaylor | Hacker News Reader

I'm unclear on why / how a 300% tariff on the Bombardier jets would be considered fair or good in any way, for anyone other than Boeing. Is this just classic corrupt lobbying or is there more to it?

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Their complaint is that the Canadian government subsidized development costs (which it arguably did), so it's unfair competition.

https://en.wikipedia.org/wiki/Countervailing_duties

However Boeing is also quite subsidized, just more indirectly through defense contracts. And what's more, Boeing doesn't even offer a competitive product. They don't sell any aircraft in this size range.

By some accounts, Boeing is the most subsidized company in the world.

https://globalnews.ca/news/3773916/bombardier-boeing-subsidi...

https://www.forbes.com/sites/taxanalysts/2014/03/14/where-is...

You have to be careful when you see claims of a company receiving $x in subsidies. There is often some questionable accounting which going into computing those numbers. For example, the $64 billion figure from the headline of the first article appears to be mostly from loan guarantees. Loan guarantees are definitely a form of subsidy, but computing their value is not trivial. You need to figure out what the rate would have been without government backing and compare that with what the actual rate was. Simply taking the notional value of the loan, as was done to get the $64 billion figure, vastly overstates the magnitude of the subsidy.

One of my teachers in high school was complaining about Boeing being exempt from Washington state sales tax for the sale of...airplanes. Is that a subsidy? I wouldn't count it as such.

It is. It's a targeted expenditure (vs. a lower sales tax rate overall) but IANAL.

For a company with international sales, sales tax (and VAT) should be handled in the district where the sale occurs, not where the product is manufactured. The big problem with the USA is that it doesn't have a VAT system in place to make it all work out equitably.

Unless I'm misunderstanding your point, I think it still works out equitably regardless of the existence of a VAT system.

All tax breaks are subsidies.

Well, it makes a difference whether the government is giving money to the company or visa versa.

In effect maybe, but this isn't considered a subsidy on paper though... from my understanding the distinction is "giving" is a subsidy vs "not taking" is a tax break?

Yep. Every country with an advanced export industry has an Export-Import Bank. Small countries making capital purchases of hundreds of millions of dollars wouldn't be able to secure the financing, otherwise; at least, not at any reasonable rate. The fact that the U.S. Export-Import Bank has never had a net loss (at least, none of note AFAIK) is really all we need to know about how much of an unfair subsidy they're providing: none. IOW, they aren't guaranteeing transactions that aren't economically viable. It's just that, say, Ethiopia has zero chance of not getting gouged by major American or European banks. Among other things, big western banks don't have any appetite for dealing with the risk--currency exposure, foreign liquidation headaches. Even though ultimately they could recover their losses, it would ruin a few quarters of profits and throw their shareholders into fits.

When people argue that Boeing exports make up the bulk of the Export-Import Bank's financing, well, d'uh. For political reasons the bank likes to sell itself as supporting small business, but the fact of the matter is that the global banking industry is competitive enough to finance smaller purchases. The economic function of an Export-Import Bank is to improve the transactional efficiency at the very high-end of the market. More importantly, as an advanced economy the U.S. primarily exports advanced (i.e. extremely costly) capital goods.

Some national export-import banks are primarily in the business of funneling subsidies to domestic exporters. You can tell because they hide huge losses. But that's just not the case in the U.S., Canada, or most of Europe.

That's kind of like arguing that because housing prices have never(!) gone down (pre-2008), housing prices will never go down, and therefore underwriting any mortgage carries 0 risk. It's simply bad math.

I'm not saying it's 0 risk. My point was merely that given the absence of such losses--losses that similar banks (e.g. in China) regularly sustain to support blatant industrial subsidies--then it's a stretch to call it a subsidy given the loaded meaning of that word in both politics and international affairs.

Yes, technically it's a market intervention. But unless someone is prepared to say that the Export-Import Bank is creating a bubble in exports, driving more exports than is economically sustainable, then criticism of the Export-Import Bank is unwarranted. Some economists are prepared to say that. But I think most economists--the ones who aren't ideological radicals--would say that it's a complex question, admit that it's probably serving some useful economic function, and shrug their shoulders. And of course most other people in the industry would absolutely say that it serves useful and necessary function.

It's not like the defense department would not be developing and buying jets if Boeing didn't exist. I don't really think of defense business as a subsidy. Though admittedly I'm sure there's plenty of grease money being spread around.

Not always subsidy by itself, but DoD and NASA are used to subsidy Boeing and others. DOD and NASA transfer economic resources to the industry on terms more favorable than available on the market.

one look at senators arguing about saving platforms the DoD doesn't even want because federal money flows into their state should give you pause

Defense spending isn't supposed to be a direct subsidy, but the DoD does sometimes blatantly choose one product instead of better competing products based on industrial concerns. E.g. that tanker buy where Airbus won the competition, but the DoD reversed it and leaked emails showed that it was done purely to benifit Boeing. Or that the US Army refused to allow the widespread introduction of a modern infantry rifle that isn't made by Colt, forcing the US Marines to designating their new rifle as a "light machine gun".

Every country does this, since having your own defense industry is a massive strategic boon and keeping those high-tech jobs are good for the economy. But it's definitely anti-competitive behavior and the respective defense companies do get a lot more taxpayer money for the capabilities the country gets than would be optimal.

There is no big airplane company without Gov subsidies. They generate so many "good jobs".

That's true, but beyond the jobs there is a legitimate issue of national security. If we're going to have a military at all then that implies we need a domestic aerospace industry capable of producing large aircraft. That capability has to be preserved as a strategic necessity regardless of cost.

Other countries do quite well military-wise, without having domestic aerospace industries. They just buy the planes from other countries that do have them.

Maybe not feasible on a scale such as the US military, but still.

The problem is that this gives other countries a big stick to beat you with, just by refusing to sell you more aircraft or spare parts or whatever. Iran is a case in point. Under the shah, Iran was a US ally, and purchased US aircraft. After the revolution, the US shifted its favour to Iraq and refused to sell spare parts and supplies for the aircraft, severely hampering the Iranian air force. This might not have been such a problem, but Iran was at war with Iraq at the time.

This sort of thing is why most countries are keen to manufacture as much of their military equipment domestically as possible.

  The problem is that this gives other countries a
  big stick to beat you with,

I've always thought it a bit odd that we don't apply the same logic to imports of things like food, oil, computers and suchlike.

Who don't? Governments certainly do. Food is commonly subsidised so that domestic production is maintained. Oil is commodity number one in governments exerting influence to control it. I'm not so sure on computer manufacturing.

Or if not subsidized, then subject to enough import restrictions that domestic producers survive. I'm a pretty hard-core free trader, but in this case I think some restrictions to ensure a local industry make sense. You shouldn't have to starve or freeze just because other countries close the border. Security comes before prosperity or you're partying on the Titanic.

They do, via trade sanctions.

What do you think why, if a German comoany such as Infineon or Aixtron plans to sell parts of their business to the Chinese, the US President gets a veto?

Because you do apply the same logic — it has to be produced by us or our closest allies — to all these industries.

Boeing is subsidized in many ways, including defense contracts.

Boeing is the largest winner of state and local tax incentives valued in $13 billion. Most of these go to commercial aircraft manufacturing. DoD also awards defense contracts that intend to keep strategic commercial technologies within US (just like all large nations).

Boeing and Airbus have been involved in legal battle over subsidies over a decade. When WTO found that there was only $1 billion in illegal subsidies in 777X development and rest $8 billion were legal subsidies, Boeing was celebrating.

No, the CSeries is Bombardier muscling onto Boeing’s turf. The CS300 is a very direct competitor to the 737 MAX 7.

Every news outlet I've read on this states that Boeing proposed used embraer jets to compete with the bombardier c series and has no directly competing aircraft.

In order to have a valid complaint, Boeing had to identify a "Domestic Like Product", which was indeed the 737-700 and 737 MAX 7, capable of carrying 126 and 138 passengers respectively, comparable to the C300's capacity. That part of it is true. The aspect in which boeing's product does not compete is that the 737 is a 50-year-old frame by now, whereas the C300 is a modern and technologically far advanced design. Needless to say, Boeing did not over-emphasise that point in their submission.

Boeing's complaint is actually factually correct and pretty much rock solid. BBD is indeed being subsidised via tax breaks and sweetheart loans from its various interested governments, and it did indeed sell the airframes to Delta at well below cost. The trouble is that Boeing does exactly the same thing all the time.

These kind of tactics are, regrettably, par for the course in competition between Boeing and Airbus. I think the main reason everyone is pissed off at Boeing is not only that the C300 is inarguably a profoundly superior product to Boeing's ageing cash cow, but they're employing their most ruthless "nuclear" legal tactics against a company so much smaller than them, in a friendly, neighbouring country, which is a customer to boot! At the very least, it's not very gentlemanly. It's pretty rich to shriek about "predatory behaviour" from a company a hundredth their size.

For anyone interested, the public version of the complaint is available here: https://leehamnews-5389.kxcdn.com/wp-content/uploads/2017/04...

Your characterization that the 737 is a 50-year old airframe and wouldn't compete with the CS300 is entirely inaccurate.

Boeing just keeps the same model numbers for a series of aircraft, but through gradual evolution of sub-models the newest 737 MAX that exists today is an entirely different plane from the original 737-100 released in 1966.

Just look at this specification table for the different models on Wikipedia: https://en.wikipedia.org/wiki/Boeing_737#Specifications

Pretty much the only thing that's the same is that the fuselage is the same diameter. Everything else from length, height, wing span, passenger count & even how fast it cruises has changed over the years. It now has over twice the range that it did in 1966.

Secondly just because two aircraft aren't exactly the same size doesn't mean they aren't competing for the same market. As an example no airline sits down and decides they need a plane that carries exactly 150 passengers, and 180 would be out of the question.

Instead they look at the overall price, efficiency etc. Maybe they'll buy a smaller plane and run more flights per day, rather than a bigger plane with fewer flights.

You can trivially see this by looking at the multitude of airframes you can choose to fly with between pretty much any two major international airports.

> Your characterization that the 737 is a 50-year old airframe and wouldn't compete with the CS300 is entirely inaccurate.

Of course the 737 has been updated over the years but it's still fundamentally the same frame and has numerous drawbacks over newer models:

- it's aluminium, not composite, so is much heavier than the C300, meaning worse fuel efficiency per pax, and will have smaller windows, less comfortable cabin air pressure, etc

- it sits too low to the ground to carry the most efficent high-bypass turbofans - again less fuel efficient

- again because it's so low to the ground, the MAX 10 is so tail-heavy some (most?) airlines have passed on it in fear of tailstrikes and load restrictions at the gate

- still not fully fly by wire AFAIK

and the list goes on. You're right that it's been refreshed over the years but even boeing wants to replace it with a clean sheet design, just as the composite 787 has replaced the 767. Advancements have been made and eventually you just need a new frame.

Another factor in favour of the C300 is that it's optimised for its load capacity. The 737-7 (and a318/9 for that matter) are shrinks of their design and thus carry too much wing & superstructure for comparable loads. This again increases weight and reduces cost effectiveness.

Even the mass media has been saying that if the C300 gets a foothold into the US market that Boeing may be forced to invest in a clean sheet new frame to effectively compete, and they're right.

Sure, at the CS100 and CS300 sides Boeing doesn't have any competitive options. But if BBD succeeds into stretching the C-series into the CS500 that very directly competes with Boeing's bread and butter (the 737). The E2 can't be stretched that much. This is why they've gone after BBD and not Embraer.

Boing is one of the most subsidized companies in the world. Funny how they have even the courage to point this out against Airbus. This shows that to be a big company it is not enough to get government money, you need to be shameless.

Excessive goverment subsidies can destroy competition in otherwise healthy markets (which I wouldn't classify the Boeing/Airbus duopoly as to begin with).

For example, look at dairy products in Africa. Local farmers couldn't compete with the heavily subsidised European industry for a long time.

http://www.independent.co.uk/news/world/politics/eu-subsidie...

https://en.wikipedia.org/wiki/Export_subsidy

Just that Europe has no interest in a healthy market for food stuff because they would lose local producers. They want to stay at least somewhat sustainable.

The argument is that Bombardier was selling jets at unfairly low prices thanks to subsidies from the Canadian government. I have no idea if this is true or not, but generally you can't get tariffs without pointing to some alleged unfair trading practice.

I have no idea if this is true or not, but generally you can't get tariffs without pointing to some alleged unfair trading practice.

I'd buy that if this was a WTO ruling but these are tarrifs adjudicated by Americans, supporting an American company.

The US similarly imposed tarrifs on softwood lumber not that long ago, and they were determined to be illegal once it hit the WTO. There's no reason to believe that won't happen again.

It is true as far as we know. However:

* Boeing is guilty of the same, selling hundreds of both the 737 and 787 far below production costs to be able to compete with Airbus' 320 and 350.

* Slapping such a massive tarif onto the CSeries was a political move aimed purely at squashing a new competing product that barely overlaps in cost/capabilities with a 40 year old, obsolete Boeing product.

Bombardier got a huge bailout by the Quebec Government, so it effectively funded a US companies competition. That type of thing is bad for competition. But, as a result, the few hundred planes they would have sold will not be made by their largest competitor in the US.

In fairness, Quebec took a 49.5% stake in return. There's a huge grey area between complete non-intervention and state-owned or state-financed industries (Quebec doesn't control the money supply).

Plus, there are all the tax deals Boeing gets. It would be interesting to compare those with the tax deals Bombardier gets in Canada.

I was under the impression it was the Province buying into the C Series Jet. They own a % of the Jet just like Airbus now owns a %. You know the way the US Government bought GM Shares and AIG, etc. An investment not a bailout.

I can imagine Canada trying that in retaliation. Won't be a good day for anyone.

"That type of thing is bad for competition"

Is that the case? For instance, we could argue that Airbus would not exist without governments help.

Would be, a world without Airbus, more competitive?

Now that I think about it, we could argue that Boeing would not exist without government help neither.

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