One of America's strongest, and potentially friendliest, trading partners is now coming under heat from the United States government.
The United States has accused the Canadian Government of offering subsidies to Montreal's Bombardier, with estimates within the United States Department of Commerce at around 220%. The Trump administration has instituted an import tariff on these goods in order to attempt to punish the Canadian government. The tariff will be equal to the subsidies given by the Canadian government. The import tariff will sit at 219.63%, which will significantly damage the possibility of Montreal's Bombardier product selling in United States markets.
The case began as a cry for help from United States' company Boeing, claiming they faced unfair competition from Montreal's Bombardier. After an investigation by the United States Department of Commerce, it became abundantly clear that there were unfair trade practices being committed by Bombardier in association with the Canadian government.
Trade with Canada has been facing increasing tension, as the United States government has imposed tariffs on softwood lumber, and continues to consider placing tariffs on more of Canada's exports. The Trump Administration has made it clear that they are willing to stand behind previous statements to hit hard with import tariffs if needed.
In class, we have learned export subsidies drive the export price of a good down, which improves the terms of trade for the importing country. Further adding an import tariff further harms the terms of trade for the exporting country and increases the terms of trade for the importing country. The quantity demanded for this good in the importing falls as a result of the tariff. However since the production is still the same, price falls. It will be interesting to see whether these 100-150 airplanes valued at around $5 billion will be able to be sold still, or if they will be forced to be dumped in other markets.
The goal of the United States government is intended to protect Boeing from subsidized competition. In this situation, is it justifiable for the government to implement this tariff on the Canadian government? Should the United States attempt to protect industries such as aerospace manufacturers like Boeing? Or do the potential problems and harm to welfare outweigh the protection these tariffs provide? The United States is considering more tariffs on goods from Canada, and this may just be the beginning of a tariff heavy time in the United States government.
For more info on this information:
New York Times Article on Tariff
NY Times Article on Further Tariffs and Trump Administration
Department of Commerce Statement on Tariff
I think it's justifiable for the US to implement this tariff. The 220% subsidy from the Canadian government seems pugnaciously large and I think this is a textbook example of predatory pricing. The manufacturer (Bombardier) is exporting their product to a foreign market (US) at a price below the normal price in an effort to increase market share and drive out competition (Boeing). Normally, I wouldn’t advocate for government intervention in the marketplace, especially in what seems like a pissing contest between two “big boys” of the industry, but I think that Canada simply got too aggressive in regards to the subsidy – to the point where the US had no choice but to relive the harmful effects of the unfair subsidization via tariff.
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ReplyDeleteWhirlpool has come to Congress this week with a similar complaint. They believe that their market share in the washing machine sector is being eaten by Samsung and LG because these two companies are selling their appliances for less then what they cost to build. (Their other reason for the surging popularity of these appliances from Samsung and LG is that they make fun be-bop sounds and chimes unlike the American versions, I am not kidding. That is the official explanation (In full disclosure, I have a Samsung dishwasher that makes the be-bop noises and I find that every amusing; in a strange way it makes my appliance seem happy to be washing pots and pans.)) Apparently, there is legislation that says the government is obligated to help American companies that prove that they have suffered lost profits to imports; not necessarily prove that the other company is cheating only that they have sustain serious injury. The "safeguard law" was created in the 1970s; in 1975, this measure was used in 14 different imports including asparagus importing and since then has been used numerous times.
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