2 October 2017

Boeing’s protectionism needs to make way for a new era of free trade

by Brian Sturgess

Free trade is the most effective instrument ever devised for improving the human condition. It increases prosperity, reduces poverty, decreases the risk of conflict, and promotes social justice. The data supporting these assertions are incontrovertible, yet free trade remains a divisive and even unpopular idea in many parts of the developed world, and is under renewed attack from protectionists on both sides of the Atlantic.

It is for this reason that Daniel Hannan has launched a new think-tank – the Institute for Free Trade with an event at the Foreign Office which I was privileged to attend. The aim of the Institute is to grasp the opportunity provided by the UK’s newly-forming independent trade policy – now required after the vote to leave the European Union - as an opportunity, not just to open Britain’s markets, but to revitalise the world trading system, which has been more or less stalled since the mid-1990s. Britain, the home of Adam Smith and David Ricardo, played a leading global role during the nineteenth century in promoting the benefits of free trade to the world and an unprecedented expansion of agricultural and industrial output and ideas followed.

Britain must play this role again. The Institute for Free Trade could evolve into an important platform to revitalize the global influence of British support for openness and rekindle the flame lit by the Manchester School free-traders Richard Cobden and John Bright a century and a half ago. Boris Johnson, the U.K.’s Foreign Secretary, and Dr Liam Fox, the Secretary of State for International Trade, both made rousing speeches at the Institute’s launch reception in London this week. Both men will have an important role to play in putting into practice the ideas of free trade, perhaps above all in the U.K.’s relations with the United States. A dynamic new transatlantic partnership based on open markets and liberalization can be a beacon for the world.

But the importance of making the moral and intellectual case for transatlantic free trade, as well as global free trade, has been underscored the same time as the Institute has been created. A complaint by the U.S. aerospace giant Boeing against the new Canadian Bombardier C-Series aircraft – partly manufactured in Britain in Northern Ireland– has led to the application of a preliminary punitive tariff of almost 220% on the Bombardier jets, effectively shutting them out of the U.S. market. The duties were imposed by the US Department of Commerce and were far higher than the 79% sought by Boeing itself. This overtly protectionist move by the US administration follows a complaint by Boeing that Bombardier were selling the new aircraft below cost as a result of receiving public subsidies. The complaint was made to the International Trade Commission (ITC), an antitrust body which will rule on the issue in February. There are some hopes that the bi-partisan ITC might overturn the tariff decision, but unfortunately its recent decisions have been protectionist. This month it expressed the opinion that domestic solar power manufacturers had “suffered serious” injury from foreign imports in effect giving the President a ticket to impose tariffs.

The preemptive move by the administration to impose tariffs even before the ITC’s ruling is more than the result that Boeing hoped for. A more textbook example of protectionist rent-seeking would be hard to find. In this case the decision on preliminary tariffs is not intended to ‘protect’ a single industry, but only one single company.

Almost no-one in the aerospace industry has clean hands when it comes to receiving subsidies. Bombardier is no innocent in all this. However, it is clear that Boeing is the aggressor in this case, and the hypocrisy is breathtaking. A company that receives massive government subsidies and is currently engaged in below-cost selling of its 787 aircraft on a massive scale, is complaining that Bombardier, receives government subsidy, and has engaged in below-cost pricing on a much smaller scale.

To their credit, many in the U.S. aviation sector recognise this and have been forthright in condemning Boeing’s protectionism. The U.S. airlines Delta, Spirit and Sun Country all have opposed Boeing’s petition – despite all three airlines being major customers of Boeing. Why would they speak out? Because just as free trade increases competition, innovation, customer choice and efficiency – so protectionist actions undermine them. Customers and end-consumers, including U.S. air travelers, are badly served by this complaint. Restricting free trade always hurts consumers.

In the U.K., this is front page news. The Defence Secretary, Sir Michael Fallon, has stated that U.K. Government defense contracts with Boeing could be reviewed as the company’s actions “are not the kind of behavior we expect from a long-term partner”. It is almost inevitable, now, that Boeing will lose current and future U.K. contracts if it does not resolve the issue amicably. The Prime Minister is already under pressure from her allies in Northern Ireland (where the Bombardier planes are manufactured), and strong pressure is now growing within the Conservative Party and the media. No free trader should shed a tear for Boeing if the firm does lose contracts.

Of course, protectionism is not limited to the U.S., nor to Boeing. It is merely the latest blatant example. The U.K. and continental Europe are often just as guilty for indulging protectionist instincts. If Boeing wants to file such cases, in an attempt to hamstring its competitors, undermine consumers, and further line its own pockets, then the company has the right to give it a shot. The complaint process exists, and Boeing has a right to be heard as does everyone else.

However, politicians who believe in free trade cannot stand silently by and allow such travesties to continue. The Institute for Free Trade is essential, for exactly this reason. It must speak up, loudly, for the benefits of free trade and for unshackled competition: supporting the consumers, workers and producers who flourish under a liberalised trading system – and, yes, we must highlight how protectionist actions make us less prosperous, less innovative, and less free.

The United States remains the essential nation – the world’s only superpower, and the guarantor of the international order since 1945. Following a period during the 1930s when the US turned towards protectionism international trade collapsed and living standards fell, but after the war US administrations have promoted free trade. They must continue to do so and work in tandem with the U.K., which post-Brexit, will become the world’s leading voice for free trade and unrestricted commercial activity. Imagine what we can achieve, together.

Brian Sturgess

Brian Sturgess is Managing Editor and Chief Economist at World Economics, and worked as a consultant to the Competition Directorate of the European Commission.