Take Trump Out Of The Equation-- Would His Tariffs Be As Bad As They Seem With Him Running The Show?


Many Republicans seem more aggressively opposed to Trump's protectionist plans-- the steel and aluminum tariffs-- than quite a few Democrats. Thursday night, Chris Hayes had iron worker and progressive candidate Randy Bryce and DEMOS Action president Heather McGee on his MSNBC show to discuss the tariffs. Bryce's Republican opponent, Paul Ryan, has come out against the tariffs. Bryce agreed that protecting American industry and jobs have the potential to be good policy-- but not the way Trump is going about it. Meanwhile corporate Democrats are pretty much on the same page as Republicans on the issue and labor Democrats and most progressives support an overall trade policy that works for workers rather than just CEOs and Trump's reelection strategy, as Bryce and McGee explained to Hayes Thursday.

And there is another prism to look at this through. The Open Markets Institute offered a perpsective worth considering: "How Tariffs Can Breed Monopoly-- The Sad Lession Lessons Of Trump-Style Protectionism."

President Trump’s decision to impose big tariffs on steel and aluminum was met with outrage in most of Washington, and even in his own administration. But most onlookers missed another recent story that helps illustrate the potential unintended effects of poorly thought-out tariffs. This was Boeing’s effort late last year to get the Administration to impose a nearly 300% levy on jets built by Canada’s Bombardier. Even though those tariffs never took effect, the clumsiness of the plan cost Boeing big business and drove even greater concentration in the near-monopoly business of making airliners.

For the last generation, most Washington insiders have painted tariffs as selfish protectionism for workers in obsolete jobs and manufacturers too lazy or incompetent to compete with foreign manufacturers. But as Open Markets has written elsewhere, tariffs play an essential role in any coherent national anti-monopoly policy. Tariffs are what a nation uses to protect itself against predatory foreign monopolies and dangerous dependencies for vital goods. In America, this has been true since the Declaration of Independence, which aimed to break Americans free of the British system of trading monopolies (such as the British East India Company).

This Boeing tariff story began in 2016, when U.S. airline Delta ordered 75 C-Series commercial jetliners from Bombardier. Even though the C-Series competes only with the very smallest version of Boeing’s 737, the manufacturer argued that the Canadian government had unfairly subsidized Bombardier and asked Washington to retaliate. In late September and early October of 2017, the Commerce Department recommended imposing two different tariffs on C-Series planes, which together amounted to almost 300% of the base cost.

The move disrupted a delicate competitive balance that has been in place since Boeing bought its last U.S. rival McDonnell Douglas in 1997. Ever since, two transnational corporations, Boeing and Airbus, have manufactured all large jets, including all trans-oceanic airliners. Bombardier and Brazil’s Embraer, by contrast, have focused on building “regional” jets that hold fewer passengers and travel shorter distances. All four are heavily subsidized by their respective states. In the case of Boeing, the subsidies come largely from defense industry contracts.

It is the interaction of tariff policy with these subsidies, and not tariff policy alone, that structures the aerospace industry. In this instance, it was almost immediately clear the tariff had a big, unintended effect. By October, Bombardier had run into the arms of Boeing's arch-rival, Airbus. Practically, this came in the form of a promise by Airbus to partner with Bombardier to sell the C-Series plane, and to build those jets in a factory in Alabama, where they could avoid any potential tariff. Then in December, the Canadian government canceled a $5.2 billion deal to buy fighter jets from Boeing. All of these moves undermined Boeing's original plan to grab business from Bombardier by using the tariff weapon.

The final evidence that Boeing's gambit had backfired came January 26 when the U.S. International Trade Commission blocked the proposed tariffs. But the damage of the original decision had already been done. The last act in this period of monopolization in airline manufacturing came only last week, when Embraer, suddenly alone in the world of regional jets, sought protection from Boeing—and the U.S. government—by selling a 51% stake in its commercial jet business to its larger American rival.

The concentration of four manufacturers into a quasi-duopoly will have a number of effects, none good. They include:

  • Higher prices for airliners, especially the regional jets that serve second-tier cities.

  • Less and slower innovation in airline technology, as the number of engineering teams and potential pathways for new ideas is reduced from four to two.

  • Less bargaining power for the suppliers of aerospace component parts that sell to Boeing/Airbus, and less bargaining power for engineers and workers who make airplanes.

  • A stripping out and consolidation of the aerospace supplier system, including for highly advanced components like engines and advanced materials.

This last factor will likely prove important at a time when U.S. military competition with China is heating up. Administrations from the end of WWII into the 1990s understood that a strong and diversified domestic commercial production system was vital to ensure the supply of advanced weaponry at reasonable prices. By contrast, they understood that monopolists tended to both degrade the quality of components while simultaneously jacking up prices, as the recent TransDigm pricing scandal well illustrates.

The Trump Administration is not wrong to hold that China and other trading partners are unfairly protecting their own steel and aluminum industries in ways that harm American prosperity and national security. But if the Administration and/or Congress want to do something to actually fix the problem, this must include addressing the deep pro-monopoly bias built into the architecture of the World Trade Organization in the 1990s, and creating a well-funded team of strategists to devise more sophisticated approaches to protecting the industrial security of the United States.