Our So-Called Foreign Policy: At the WTO, Europe Claims a Right to Free Ride

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Airbus, alliances, Boeing, Charles Dickens, Defense Department, EU, European Union, foreign policy establishment, free-riding, NATO, North Atlantic treaty Organization, Our So-Called Foreign Policy, subsidies, Trade, trade law, Trump, World Trade Organization, WTO

Charles Dickens famously observed that the law can be an idiot. Last week’s World Trade Organization (WTO) ruling on U.S. and European Union (EU) aerospace subsidies reminds that American alliance policy can be idiotic – and in a key respect has been for decades. The fault here lies not with the WTO – which is hardly beyond criticism. Instead, the problem entails an American approach to international security relationships that continues a decades-long record of enabling brazen free-riding even under the current U.S. administration – which so far has decried this practice only rhetorically.

Interestingly, the WTO decision last Friday looks like a big win for American aerospace giant Boeing and a big loss for its EU rival Airbus. The trade body ruled as still illegal only one of the original 28 subsidies provided Boeing by Washington state and the federal government that were challenged by Airbus. According to Airbus, the WTO agreed with its allegation that some of the other 27 means of Boeing support were subsidies, but Boeing says that since the ruling determined that these payments had not harmed Airbus, they can remain in place. Airbus disagrees, so expect more litigation.

But here’s what’s completely outrageous. Some of the subsidies Airbus successfully challenged – at least on paper so far – were U.S. Defense Department subsidies. It’s jaw-dropping enough to recognize that Airbus gets military support, too. What’s worse is that so much of the Pentagon money handed over to Boeing (and other defense contractors) has been spent on weapons and other military systems that the United States would not need at all or in such quantity either if Washington hadn’t taken on any role in protecting Europe for decades, or if the Europeans bore anything like an appropriate burden for the own defense.

And don’t forget: For decades, even most U.S. Presidents and other foreign policy establishmentarians who have assign supreme value to continuing current transatlantic security arrangements agree that too many European members of the North Atlantic Treaty Organization (NATO) have been shirking. Talk about biting the hand that shields you.

It’s important, however, to keep in mind who’s mainly to blame. It’s clear that the Europeans deserve no high marks for either gratitude or loyalty. But it’s also clear that their actions can be reasonably portrayed as legitimate efforts to maximize their own self interests – reflecting the equally reasonable judgment that these gambits long have been good bets to succeed.

What the American public needs to ask is (a) why their leaders have handled alliance relationships so ineptly as to have created expectations of free-riding that the WTO case shows are now seen as nothing less than a right to free-ride; and (b) whether the avowedly transactional Trump administration will view the EU defense subsidy charges as a long overdue opportunity to say enough’s enough.

Making News: Newsmax TV Interview on China’s Threat to Boeing…& More!

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aerospace, BBC, Boeing, China, Lifezette.com, Making News, Newsmax TV, Ozy.com, ports

I’m pleased to announce that an interview I did this afternoon on Newsmax TV has just gone on-line. The subject: my Lifezette.com article Tuesday on how China’s new domestically produced commercial jet could become a major threat to America’s Boeing and to the nation’s longstanding aerospace predominance.  Click on this link to watch.

Also, it was great to be quoted yesterday in this Ozy.com article on how President Trump’s trade policies could affect the ports in the southeast part of the country.

Finally, I’ve got an interview coming up Sunday with the BBC on China’s “One Belt One Road” initiative, which many observers fear (or hope?) will make the People’s Republic the globe’s economic leader in the twenty first century. Check in with RealityChek for the details on broadcast time, and for news of other upcoming media appearances and other developments.

Making News: Lifezette Op-Ed on the Real Meaning of China’s New Jet

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aviation, Boeing, China, Lifezette.com, Making News, Trade

I’m pleased to announce that my latest op-ed has just been posted by Lifezette.com – an article explaining why China’s test flight of its first domestically produced jet is both terrible news for U.S. aviation giant Boeing (which sold China much of the aviation technology rope), and a clear sign that America’s longstanding approach to the People’s Republic failing disastrously. Click on this link to read it.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

 

Making News: A New NYC Radio Podcast, an In-Depth Look at that Border Adjustment Tax – & More!

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AM970 "The Answer", Boeing, border adjustment tax, China, Donimic Gates, Frank Morano, Lifezette.com, Making News, manufacturing, Populism, Seattle Times, summit, supply chains, Trade, Trump, Trump administration, Xi JInPing

I’m pleased to report that a podcast is now on-line of an interview I just gave to Frank Morano of New York City’s AM970 “The Answer”radio station. To listen to a great discussion of trade and other areas of economic policy in the Age of Trump, click on this link, scroll down to the April 9, “FiveAM” episode, and press the play button. My segment starts at about the 10-minute mark. And special thanks to Frank for a very generous introduction!

In addition, it was great to be quoted in a new Seattle Times article by Dominic Gates on the US aircraft industry and the proposed border adjustment tax. The subject could not be more important, as the tax could provide American domestic manufacturing across-the-board with the kind of intelligent protection that it’s long needed.

Moreover, Dominic, who has covered aerospace giant Boeing for years, is one of the nation’s very best manufacturing reporters. His article provides an impressively informative look at the politics and economics of a major industry’s supply chain, as well as at the border adjustment proposal. So it’s a must-read for anyone interested in the future of the American economy’s productive core.

Finally, my views were featured in two new posts at Lifezette.com.  The first, which can be read at this link, previewed last week’s summit between President Trump and his Chinese counterpart, Xi Jinping. The second, found at this link, explored the rumors swirling about here in Washington that Mr. Trump is about to replace many of his more populist advisers with figures from the establishment.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

 

 

 

(What’s Left of) Our Economy: Don’t Forget America’s Non-China Trade Problems!

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Bill Clinton, Boeing, Chad Broughton, China, Export-Import Bank, General Electric, Jeffrey Immelt, Jobs, manufacturing, Mexico, NAFTA, North American Free Trade Agreement, Ross Perot, subsidies, tariffs, The Atlantic, Trade, trade finance, {What's Left of) Our Economy

Hats off to the unlikely duo of General Electric and The Atlantic magazine for recent reminders that, for all their importance, China-related trade issues aren’t the only important trade issues facing the U.S. economy – and requiring outside-the-box thinking.

General Electric’s contribution owes to its heavy-handed response to Congress’ decision to shut down the Export-Import Bank. Like most U.S.-owned multinational manufacturers, GE claims that the Bank has been crucial to its hopes for overseas sales – and for the whole country’s. I recently showed that the share of U.S. exports aided by Exim financing has been trivial (in the context of depicting its closure as a minor Washington mistake), but GE CEO Jeffrey Immelt seems determined to make American lawmakers and the country at large pay the piper.

On September 15, the company announced that it would create 400 manufacturing jobs in France rather than in the United States to enable it to benefit from France’s version of Exim support, and that it would move 100 such existing American positions to China and Hungary for similar reasons. Just today, the company reported that it had secured access to export financing of up to $12 billion from Britain, and would create up to 1,000 jobs in the UK if this credit led to contracts.

Lots of the conservatives who favored Exim’s demise have responded by fulminating about GE “bullying.” (Boeing, the biggest recipient of Exim financing, has played this game, too, but more subtly.) They also, however, insist that these corporate arguments are phony, and that the threatened and actual job moves either would have been made anyway, or represent shifty numbers-shuffling – which logically weakens the basis of their ire. But these avowed corporate welfare foes can hit back at corporate blackmail, and support valuable domestic jobs and production if the companies aren’t bluffing or fudging, by intelligently using trade policy.

For example, they could support tariffs on any GE or Boeing products built overseas thanks to foreign government financial subsidies to ensure that those products can’t be imported back into the United States – the world’s most important single national market. They could also back tariffs on many or all foreign-made goods by these companies if the foreign government subsidies enable the blackmail-happy firms beat out domestic goods for sales in third countries. Alternatively (or in addition to these measures), Exim opponents could tell the world’s GE’s and Boeing’s that their possibilities for selling to the U.S. government – a huge customer – will look pretty dim unless their behavior improves.

As must be clear to anyone following business and economic new these days, foreign governments like China’s discipline other countries’ businesses like this as a matter of course. It seems high time for Washington to get a clue.

The Atlantic magazine spotlighted non-China trade issues less directly. It’s just published a long article about an American manufacturing company moving high-value jobs to Mexico without once mentioning the North American Free Trade Agreement (NAFTA), or even trade policy. (“Globalization” was referred to once.) This is like publishing a long article about the civil rights movement without mentioning segregation. Here’s why.

NAFTA’s creation (which technically resulted from Mexico being added to an existing U.S.-Canada free trade agreement) created decisive incentives for American manufacturers to shift factories and employment across the Rio Grande. Mexico’s workers had always been very cheap compared with their U.S. counterparts. Moreover, Mexico’s environmental and worker safety regulations had always been lightly enforced – when they were enforced at all – which further reduced production costs. So in principle, boosting profits while supplying the high price U.S. market from Mexico was long an appealing option for American industry.

But NAFTA made such arrangements an out-and-out no-brainer by offering U.S.-based companies a guarantee that neither American presidents nor Congresses could slap tariffs on Mexico-origin imports in the future, and thereby reduce and even destroy all the benefits of Mexico offshoring. This guarantee in turn was the product of NAFTA’s dispute-resolution mechanism, which gave Mexico an equal say with the United States (and Canada) in dealing with charges of treaty violations and authorized retaliation, even though the U.S. economy represents some 90 percent of the newly integrated North American economy.

This Atlantic article makes some valuable points – noting, for example, that the offshored product it examined wasn’t the kind of labor-intensive good that NAFTA’s supporters promised would dominate any job and production losses resulting from the agreement. Author Chad Broughton also usefully highlights how lax and often indulgent U.S. regulation of private equity firms – one of which owned the factory in question – can create its own significant spurs to offshoring. But that financial issue would have meant little had American trade policy decisions not made such employment and output shifts a practically irresistible option for so much of U.S.-based industry.

But if NAFTA did indeed generate such a “giant sucking sound” (as Ross Perot so memorably predicted during his 1992 independent presidential campaign) of jobs moving south, why hasn’t Mexico become an even more important manufacturing power and exporter to the United States? Actually, trade policy provides the main answer to that question, too. Almost immediately after practically inviting domestic manufacturers to move to Mexico, the U.S. government decided to make many other third world offshoring opportunities available as well, via trade deals with Central America, South America’s Andean countries, and sub-Saharan Africa. Most important, Bill Clinton and his successors have worked overtime to expand U.S. trade with China dramatically.

The offshoring companies have thus been able to play different low-income countries off against each other in a worldwide investment competition that’s been great for business (although it also contributed to the global imbalances that helped set off the financial crisis from which even many of them didn’t escape). But the losers – which have included much of Mexico – have hardly been confined to America.

Making News: Talking China Tonight on John Batchelor’s Nationally Syndicated Radio Show…& More!

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aerospace, Boeing, China, Dominic Gates, Gordon Chang, Making News, manufacturing, The John Batchelor Show, The Seattle Times, Xi JInPing

I’m pleased to announce that I’m scheduled to appear on John Batchelor’s nationally syndicated radio show tonight to discuss U.S.-China relations in light of Chinese President Xi Jinping’s visit to the United States.  Click on this link to listen live at 10 PM EST to what I’m sure will be a timely discussion with John, co-host Gordon Chang, and me.  And if you can’t tune in, I’ll post a link to the podcast as soon as one is available.

Also, it was great to be quoted today in Dominic Gates’ Seattle Times article on Boeing’s decision to build its first overseas factory in China.  In fact, it was my conversation with Dominic about U.S. policy options to fight China’s investment and technology blackmail that inspired today’s post on new American approaches to the China economic challenge.

(What’s Left of) Our Economy: If Washington Was Serious About the China Economic Challenge….

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aerospace, allies, Boeing, China, Cisco, cyber-security, Edward Snowden, forced technology transfer, imports, investment, lobbying, manufacturing, multinational companies, national security, offsets, offshoring, South China Sea, subsidies, telecommunications, Trade, Xi JInPing, {What's Left of) Our Economy

However understandable, the intense administration and media focus during Chinese leader Xi Jinping’s U.S. visit on Beijing’s cyber-hacking has overshadowed several other major Chinese threats to American national security and economic well-being – and the need to fix U.S. strategies that are failing badly to cope with them. High on the list is China’s widespread practice of extorting corporate investment and technology transfer by threatening to shut uncooperative companies out of its large and potentially bigger market. And this blackmail deserves special attention this week because two big examples of it have made it into the news recently.

The first involves Boeing, which apparently will build its first foreign factory in China – a move that not so coincidentally coincided with China’s announcement that it would buy 300 Boeing jets. The second was Cisco Systems’ decision to start cooperating with a Chinese server company on projects that reportedly could include developing new telecommunications hardware products. This deal has followed several years in which Cisco has encountered big trouble in China due to fall-out from Edward Snowden’s techno-spying revelations and charges, and to Beijing’s policy of punishing American companies after Congress in effect froze China’s version of Cisco out of the U.S. market due to espionage concerns.

Since aerospace and telecommunications are clearly central to military strength, these American corporate cave-ins could easily endanger national security – unless you believe that they’ll forever remain in their current limited form. So more effective responses are urgently needed – unless Washington wants to face ever more harmful Chinese cyber-hacking (see this article of mine on how American firms have undoubtedly shared advanced cyber-war-related technologies with China), or ever better armed Chinese forces in possible future military showdowns in the South China Sea and other disputed Asian waters.

The companies themselves explain their agreement to China’s trade and investment conditions with the “half-a-loaf” argument, and it’s not completely unreasonable. They’re obviously not thrilled to be helping create likely new competitors (whether they care about American security is another matter entirely), but they point out that any China business they preserve or gain via their cooperation is more than they’d have without the China market. In fact, Beijing has used its leverage to string them along effectively enough that they’re reluctant even to complain about their China troubles to Washington – for fear of becoming targets for Chinese retaliation, and of excessively rocking the boat of bilateral economic relations generally.

But although the companies’ behavior may be justifiable from their own individual standpoints, their unavoidably narrow, self-interested perspectives make clear why they can’t be relied to protect or advance broader U.S. interests. Washington needs to take the lead. But can it do so without imposing heavy costs on these firms? To me, the answer clearly is “Yes” – and not just because China’s economy is slowing down. The key to success is understanding that a case-by-case approach inevitably leaves China in the driver’s seat, and that the United States can and should capitalize on position as an export market desperately needed by China to ensure adequate growth.

Severely restricting China’s access to this American market would grab Beijing’s attention not only for economic reasons. Chinese leaders would begin worrying about their political futures – and their own personal well-being – since their hold on power depends so strongly on delivering jobs and rising incomes to the country’s increasingly restive population. Moreover, even keeping in mind that short-term costs for the U.S. economy are inevitable – because policy shifts of this magnitude are always disruptive, and because it may take Beijing a while to get the message – the most obvious objections are surprisingly easy to dismiss.

Where will affected companies find customers to replace those they may temporarily lose in China? In many cases, in the American market, because the smaller U.S. trade deficit with China that would result from import curbs would spur more American growth overall. Moreover, so much U.S.-China trade nowadays is “head-to-head,” (in which the same goods compete with each other), that many American firms could fill the gap left by missing Chinese imports. And when it comes to U.S. companies that can’t make up China losses this way, government compensation seems appropriate.

Given Washington’s willingness to bail out Wall Street and auto-makers for blunders largely of their own making, subsidies look defensible for firms in the line of fire of whatever trade conflict develops. (One possible caveat: Many larger, multinational companies rely on China business heavily because they lobbied so effectively for the U.S. China trade policies that have created their vulnerabilities – and other major damage to the American economy – in the first place. So there’s also a case for letting them take their lumps, at least to some extent.)

If such subsidies don’t pass muster politically in the United States, another alternative is available to Washington: using the power of the American market to dissuade non-Chinese competitors to U.S. firms from seizing the opportunities created by these new American policies to boost their own China sales. Although the American firms’ China sales would remain lost, they at least wouldn’t lose competitve ground to foreign rivals.

Further, giving these third-party companies and countries the choice of doing business with China, or with the far bigger – and more reliable – United States would have the added benefit of adding international support to American efforts to fight Chinese protectionism and economic predation.  Working with Washington would also aid foreign governments and companies by reducing China’s scope to play trade partners off against one another. 

Finally, it’s true that the kind of jobs and even technology extortion used by China are standard operating procedures – especially in aerospace and in military aerospace – for many foreign governments, including those of U.S. allies. So how could Washington justify singling out China for counter-measures? Yet when it comes to allies and their policies (called offsets), the answer couldn’t be more evident: They’re allies and China manifestly is not. It makes no sense whatever to treat all foreign governments and economies the same when their relationships with the United States are so dramatically different, and this kind of foolish consistency certainly shouldn’t hamstring America’s approach to China’s economic transgressions.

There is, however, one obstacle to this kind of revamp of U.S.-China economic relations that I don’t see being overcome anytime soon – the continued domination of China policy-making in Washington by those aforementioned multinational, offshoring-happy business interests. The China policy status quo has undermined the American economy’s productive core, and increasingly threatens national security. But the offshoring lobby believes it’s worked well enough for its members. So until a critical mass of national political leaders decides to reject their lavish campaign contributions, expect China to keep taking America to the cleaners. And when Chinese actions sting enough, expect a few grumbles from the multinationals – no doubt mainly for show.

(What’s Left of) Our Economy: Boeing Hands China the Aerospace Rope

Tags

aerospace, Boeing, forced technology transfer, manufacturing, technology transfer, training, {What's Left of) Our Economy

“Blowback” refers the dangerous backfiring of policies and other decisions that involve aiding dubious partners. Major recent examples include U.S. arms aid to anti-Soviet Muslim extremists who later became anti-American Muslim extremists, and voluntary technology transfers to China by American businesses that inevitably wound up teaching cyberhacking skills to the Chinese and helped create Chinese commercial rivals.

Now you can add to the list Boeing’s decision decades ago to start building aircraft parts and components in China, and training Chinese aerospace engineers. This offshoring strategy is finally enabling China to start building a jetliner that Boeing views as a formidable competitor.

Speaking at a conference last week, Boeing CEO Jim McNerney said that the company would launch a new narrow-body plane to preserve its position in this market both from longtime rival Airbus, and from a new prospective state-owned rival from China. Boeing’s entry in single-aisle jets is the 737, which as is typical for many commercial aircraft models, is already being updated.

But McNerney noted that Commercial Aircraft Corp. of China (Comac), is on track to deliver a single-aisle jet of its own by 2018, and that as a result, Boeing can’t count even on a revamped 737 to measure up. Therefore, the company will be aiming to build a wholly new aircraft for delivery before 2030 to remain competitive.

What Boeing failed to mention is how difficult it is to imagine China getting to this point anywhere near this fast without Boeing’s own help. As the company itself reports on its website, Boeing has been used Chinese-made parts and components on every one of its jets currently in service – including its newest and most innovative model, the 787 Dreamliner, for which the Chinese build the rudder, panels that reduce drag between the advanced carbon-fiber-constructed fuselage and the equally advanced carbon wings, vertical fin panels, and other composite parts.

Moreover, the Chinese are not manufacturing these parts in Boeing wholly-owned factories in China or in Boeing factories in China affiliated with private sector partners from the PRC or from any other country. These Made in China parts are manufactured either by factories in China owned and operated completely by China’s government-dominated aerospace industry, or by joint ventures between Boeing and these Chinese government facilities.

In addition, Boeing has provided “enhanced professional training to almost 50,000 Chinese aviation professionals” in fields including manufacturing and industrial engineering, and is conducting research with the Chinese Academy of Sciences and various Chinese universities. Projects worked on with these government-run or controlled institutions include “advanced materials and advanced computing technology for aviation and industry design.” The company is also working with four Chinese universities by providing, scholarships, funding programs, training faculty, and developing courses – all with an aerospace focus.

So far, Boeing – and the United States – have enjoyed a hefty payoff for all this cooperation. The company currently controls half the huge Chinese aviation market, and there can be no doubt that the offshoring and tech transfer price it has paid for these sales have resulted in major payoffs for U.S.-based workers both at Boeing itself and at its vast domestic supply chain.

And the company is unmistakably counting on such policies guaranteeing it and its U.S. Employees and suppliers, a big share of China’s future aviation market, which it believes will needs $870 billion worth of new aircraft (more than 6,000 planes) over the next 20 years.

The trouble is that China’s game plan doesn’t include granting non-Chinese players even a single percent of its market for anything a moment longer than it needs to. Given its still-wide edge over Chinese aircraft manufacturers, Boeing’s strategy looks like a winner for the U.S. economy for the foreseeable future. (The short-term impact on U.S. security of all this aerospace tech transfer and training could well be very different.) But with each bit of aviation knowhow it imparts to China – typically for reasons having nothing to do with free market practices, and everything to do with Beijing’s success at extorting these gains in exchange for pieces of the China market – Boeing brings the potential tipping point, and its own demise, a little closer.

(What’s Left of) Our Economy: Competitiveness Hasn’t Always Required Trade

Tags

Airbus, aircraft, anti-trust, Boeing, Bollywood, competitiveness, entertainment, finance, Hollywood, software, Trade, trade Deals, {What's Left of) Our Economy

Because the Mainstream Media consistently fronts for the economics establishment on the big issues, the appearance of this (evidence-free) post on The New York Times website Thursday indicates that a big official theme of upcoming months will be the inability of the United States to withstand a global slowdown.

This narrative is likely to be put in service of two related sets of policies that would unnecessarily slow an already woefully subpar U.S. recovery, and worsen the global trade and investment imbalances that helped trigger the financial crisis and all the misery that’s followed it.

The first, which I wrote about recently, is the reported decision to open American markets unilaterally in order to boost growth rates overseas in the mistaken belief that the U.S. economy is strong enough to afford this handout. The second is the continuing push to conclude huge trade deals with Europe and Pacific Rim countries that would produce the same harmful results because they’re modeled after a long string of agreements that have supercharged U.S. deficits.

So it seems timely to present some new reasons for concluding that America is amply capable of prospering amid global stagnation – and even worse – and that Washington should be seeking to enhance this capacity for self-reliance, not further degrade it.

A while back, I asked why the economics conventional wisdom – and the chattering class that parrots its every claim – assumes that the enormous U.S. economy couldn’t generate an adequate level of efficiency-enhancing competition all by itself, and that its integration with the larger (but not stupendously larger) world economy is needed to achieve this important goal. I’m still waiting for an answer.

Here’s some new evidence for doubting that international competition is crucial for ensuring satisfactory product quality, consumer choice, innovation, and the like – at least where American industries are concerned: Several major sectors of the U.S. economy that easily come to mind have risen to (deserved) world-leading status while facing virtually no foreign competition at all.

The first example: long-haul commercial aircraft. Boeing today is one of only two serious global players (the other being Airbus), but before the European Union’s heavily subsidized products appeared on the market, American-made long-distance craft were the only game in town. Yes, Britain produced the first commercial jet, which came into service in 1952. But a series of accidents effectively killed the Comet, and Britain’s civilian aircraft industry, and by 1958 Boeing entered the business never to look back. It would be joined by Lockheed and Douglas, but the Americans had the field completely to themselves until Airbus’ entry in 1972,  Among them, the U.S. firms manufactured generations of excellent products, along with some troubled jets like the DC-10.

I’ll be briefer on the other examples, just to get this post up sooner rather than later. But they are:

> computer software. As with commercial jets, American companies totally dominated the field for decades. Although significant foreign competition was absent, domestic competition was fierce;

> finance: Although individual European and Japanese banks and other financial institutions often dwarf their individual U.S. counterparts by various measures, collectively the American finance industry has long towered over all national rivals, and it’s the same situation for financial markets. When it comes to innovation (a mixed blessing, as the financial crisis should teach), the gap has been even wider. And again, fierce domestic competition has been the key – especially after post-1970s waves of deregulation; and

> motion pictures: Whether or not you prefer American to foreign films as a rule, there’s no doubt that the former have long ruled commercially all around the world. In fact, common features of recent and proposed trade agreements have been provisions permitting foreign governments to maintain various types of limitations on U.S. Films’ access to their domestic markets, for fear that the homegrown industry will be overwhelmed. Yes, I know there’s been a huge Bollywood industry in India for roughly 100 years. But with exceptions like Slumdog Millionaire, its offerings have limited appeal globally and simply have never come close to the box office racked up by American blockbusters.

It’s easy to explain all the above narratives with “special circumstances.” For example, American finance has reigned supreme for so long largely because the United States began the post-World War II era with nearly all of the world’s available liquidity. It also began that period with one of only three major aircraft industries not bombed out of existence (along with Britain’s and the Soviet Union’s). But these sectors maintained predominance long after postwar recovery began around the world. And the U.S. software edge, which initially benefited from military investment, grew much bigger once the largely civilian personal computing and internet revolutions took off.

Moreover, the role of special circumstances strengthens rather than undermines this post’s main argument: Foreign competition’s role has been anything but all-important. And as I’d written bein that previous post, America’s immense economy could easily generate more domestic competition – and all its benefits – with serious enforcement of anti-trust and anti-monopoly laws. Could more trade strengthen the U.S. economy still further? Absolutely. But the acid test of new agreements now needs to be not simply how their net gains compare with the situation in the absence of such deals, but how they compare with alternatives within Washington’s grasp that are entirely domestic.

(What’s Left of) Our Economy: Delta’s Exim Bank Hypocrisy

Tags

Airbus, airlines, Boeing, Delta, Exim, Export-Import Bank, subsidies

It’s no accident that I’ve been ignoring the raging Washington debate over reauthorizing the Export-Import bank – which will determine whether the official trade financing agency lives on or dies. I sympathize with the idea that the U.S. government should fight foreign subsidies with subsidies of its own. Unfortunately, the overall scale of foreign subsidies (especially from competitors whose national finances are much stronger than America’s) renders this option completely unaffordable; therefore, the best U.S. response is imposing tariffs. (The widely supported belief that the nation can offset foreign tax breaks and lower corporate rates with comparable measures suffers similarly fatal flaws.)

Then there’s the actual magnitude of Exim’s operations – they facilitate only a small fraction of U.S. export sales. If supporters like President Obama were really interested in addressing trade market rigging by foreign governments, they’d be thinking way beyond Exim. Ditto for major beneficiaries of the Bank, like Boeing and General Electric. But these multinational firms strongly back the U.S. trade policy status quo mainly because they benefit hugely from foreign subsidies and other predatory practices like currency manipulation when they manufacture abroad or procure foreign parts and components. Of course, these practices are now central to multinationals’ business models.

Still, one aspect of the Exim debate is so hypocritical that it cries out for spotlighting: the claim by U.S. airlines that Exim subsidies for Boeing disadvantage them versus their foreign competitors by enabling these rival carriers to buy new jets from Boeing for a song. This complaint is hypocritical because U.S. airlines get the same kind of price break when they buy from Boeing’s European rival, Airbus.

Despite numerous trade cases filed by Washington in the World Trade Organization and its predecessor global trade body. Airbus has continued to enjoy major European government support. In fact, it wouldn’t exist in the first place if not for an official European decision to create a viable commercial aircraft industry practically from scratch.

But Delta, which has spearheaded the corporate anti-Exim lobbying drive in Washington, has been happy to free ride off of European taxpayers, as the company’s own data shows. All those jets whose model names start with “A” come from Airbus. Obviously, the same is true for other U.S. carriers.

Tea Party-oriented Republicans and other conservative reformers in particular have portrayed the Exim fight both as a battle over principle, and as a great political opportunity to show voters that they’re much more strongly opposed to crony capitalism than Democrats. In fact, the Exim controversy is best explained as a clash of opposing business lobbies. And if reform conservatives want to establish truly impressive anti-cronyism bona fides, they’ll need to take on much more important targets than the Exim Bank.