On April 27, 2017, Boeing petitioned the U.S. Department of Commerce to impose antidumping and countervailing duties for a total of “at least” 159.91% on Bombardier’s C Series commercial jets. Antidumping duties are supposed to compensate for the sale of an imported good at a price lower than its normal price or “normal value.” Countervailing duties are meant to compensate for subsidies from the government of a foreign exporter. On the first ground, Boeing claims that Bombardier is charging Delta Air Lines a price 41% less than the production cost; and, on the second ground, that Bombardier has received $2.5 billion in subsidies from the provincial government of Québec and a promise of a few hundred million dollars more from Canada’s federal government.
This is from Pierre Lemieux, “Boeing vs. Bombardier,” Econlib Feature Article for September.
One of the things I like about the piece is that in a few paragraphs, Pierre lays out the basic facts about antidumping duties and countervailing duties. Also, he gives the reader a feel for the petitioners’ likelihood of success. Hint: it’s very high. The whole piece is worth reading.
Pierre draws on the work of Dartmouth international trade economist Douglas A. Irwin. In his understanding and perceptive on trade, I would put Doug in the top 10 trade economists in the United States.
READER COMMENTS
Jon Murphy
Sep 4 2017 at 3:35pm
I could not agree more. I met Doug at a Dartmouth event a few years ago when I used to live in New Hampshire and since then have made a point of reading his stuff whenever I can. I’ve learned a lot from him.
(From the Article):
Between 2000 and 2014, the Department dismissed only seven petitions out of 400, implying a whopping 98 percent success rate for complainants.
Wow. Given the protection they receive and the relative cost of filing a complaint (about $1m according to the article), I’m surprised more complaints aren’t filed!
Hazel Meade
Sep 5 2017 at 10:06am
It’s a reminder to me of how so much of what the government does is roundabout makework for domestic labor.
Why would Canada want to subsidize the production of jets that would be sold at a loss in the US? To provide jobs obviously. Jobs whose product benefits Delta Airlines – an American company.
Why would the US government support an anti-dumping case? To protect the jobs of Boeing workers who will be producing more expensive jets – so that Delta Airlines can pay more for them and charge consumers more.
If both sides were behaving rationally, their positions would be reversed. The US government should be celebrating the cheap jets which America is importing, and the Canadian government should be aghast that their subsidy spending is going to produce something that benefits mainly Americans.
I think there is something of a lesson here in how democracy produces inefficient outcomes due to government’s incentives to protect workers jobs over net benefits to the economy as a whole.
Thaomas
Sep 5 2017 at 11:56am
@ Hazel Mead: “Workers jobs” may be the talking point, but the political economy is the favoring of one firm over others.
That said, IF “subsidies” could be well identified, these measures could be welfare improving: the US protecting the welfare of Canadian taxpayers and other countries protecting the interests of American taxpayers. I think it has worked that way to some extent in the Airbus/Boeing subsidies.
Michael Rulle
Sep 5 2017 at 3:53pm
@Thaomas and @Hazel Meade
I agree with Hazel on the conclusion based on the given facts. It does seem hard to believe those are the given facts, but by and large, we should welcome the outcome of others giving us “money for nothing”.
But Thaomas does raise an interesting countervailing point. While I do not think it is one country’s job to bail out the bad policies by another country, it does raise the question if there are unintended consequences of such distorted trade policies which end up lowering total output of both countries.
Pierre Lemieux
Sep 10 2017 at 10:08am
The point raised by Thaomas and Rulle is good. If retaliatory trade actions against foreign subsidies or trade barriers bring these governments to abandon them, this retaliation would increase welfare at world level — as Adam Smith already noted. But retaliation generally does not work that way. Moreover, unilateral free trade could work as well in promoting all-around free trade, because foreign countries cannot (at least over the long run) export more than they import.
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