Saturday, March 10, 2018

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.

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At 5:38 AM, Anonymous Hone said...

This whole issue about Trump and tariffs is absurd. Again, time is being wasted ad nauseum in the media, including DWT, by attempting to discuss his proposal in seriousness and specificity when it was created in a vacuum and brought forth with impulsivity. The nuances and effects of such a drastic proposal should be discussed BEFORE running with it, not after.

As usual with Trump's statements, there were no details and a complete disregard for consequences. His staff had not even finished researching the issue. The only ones who knew about it in advance seem to be Wilbur Ross and Carl Icahn. Trump clearly drew the percentages for steel and aluminum right out of his butt when he was questioned by a reporter. This is no way to announce a policy with such major implications for the USA and our trading partners.

This is another example of Trump's psychiatric disturbance and malignant narcissism. He loves to flaunt his power and throw everyone around him off balance. Ruination is his underlying theme and he will ruin us all as he continues in office. He has just done the same thing with North Korea. TRUMP HAS TO GO! We have seen nothing yet about the consequences of so many of his rash actions and they will be YUGE. While he can back off and change the steel and aluminum tariffs if he feels like it, he cannot possibly back out of his agreement to meet with Kim without tremendous ramifications. Another instances of action with complete disregard for expert advice - there is none even available as the main expert just quit, there is no ambassador to South Korea (as Trump never appointed anyone) and the state department is shredded. Trump is an ignoramus and in some ways pathetically naive and easily influenced. Who the hell knows what he will promise Kim? Will they be new Best Buds?

Let's face it - anything Trump does has the stamp of ignorance and "fuck you" shining through it. While we surely need better trade policies, Trump has NO ONE with any real knowledge and expertise advising him. He wouldn't listen anyway - Cohen tried and just quit. Our government should not be dreaming up and announcing earthshaking policies in this manner.

At 6:26 AM, Anonymous Anonymous said...

So how is Boeing's push far tariffs on Bombardier jets and forcing a price increase on the competition any morally different than Martin Shkrelli raising the cost of Daraprim just to make more money? It makes one wonder just where that "free market" actually exists, unless one alters the meaning of "free" to align more with it's usage in the term "freebooter", otherwise understood to mean "pirate".

As the article points out, Boeing is heavily subsidized with military contracts. And what does Boeing do with this money? It moves to right-to-work-for-less states and increases the executive remuneration. Even the shareholders aren't getting much of this windfall.

It is past time for the laws of this nation to again limit the life duration of a corporate charter and force reapplication at the end of each term. Those corporations who refuse to be good citizens (they ARE entities with rights equal to human people under Citizens United, after all) end up being eliminated by having their charters denied.

At 7:50 AM, Anonymous Anonymous said...

Boeing is hypocritical here. They import as much as 70% of the parts for their jets from overseas -- a ploy to get foreign airlines to buy their planes plus a way to keep fixed costs (labor, materiel) lower. They have moved to non-union states to get out from under unions in Seattle. Plus, didn't they once OWN Bombardier?

Does anyone remember trump appearing on Letterman to shill his shit ties? Letterman looked one over and noted it said "made in china" to which trump just shrugged.

Of course, americans have had the genes required to recognize hypocrisy and irony selectively bred out of themselves over the last 60 years.


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