Airbus Illegal Subsidies: Washington Must Act
Issue Brief
The World Trade Organization has determined that European Union countries used illegal subsidies in enabling Airbus to build airliners that compete with planes made by Boeing. The practical effect of these subsidies was to give Airbus an unfair advantage in marketing every commercial transport it has ever built, which is one reason why America no longer is the dominant global supplier of airliners. Airbus defenders are attempting to minimize the significance of the ruling, arguing that Boeing gets unfair subsidies too. But the WTO has made no finding of unfairness on Boeing’s part, and even if it did the infractions would be minor compared with Airbus’s 30-year pattern of illegal trade practices.
You don’t need to grasp all the intricacies of the Airbus case to understand why the Obama Administration must act to prevent abuses of free trade. Just look at what has happened to America’s economic standing in the world since the new millennium began. When George W. Bush took office in 2001, the U.S. economy represented 32% of global output. But the U.S. share of global production fell steadily during the Bush presidency — to 31% in 2002, 29% in 2003, and 28% at the end of Bush’s first term. By 2008, U.S. economic activity had fallen to 23% of global output. In other words, in eight short years America went from generating nearly a third of global output to less than a quarter.
The causes of America’s decline are complex, but it is no coincidence that the erosion in global market share has been accompanied by a rapidly growing merchandise trade deficit that reached $2 billion per day before the recent recession hit. The recession dampened demand for imports, but now that recovery has begun, the trade deficit is shooting up again. Common sense should tell us that when a nation runs trade deficits of over 5% of gross domestic product, the outlook for economic growth isn’t good. But policymakers have been reluctant to abandon ideology and simply look at the evidence, so America has continued to lose an average of 50,000 manufacturing jobs every month in the present decade while the portion of manufactured goods consumed in the U.S. that were produced abroad has grown to over a third.
The WTO’s ruling concerning Airbus subsidies suggests that these trends result from more than just the free interplay of market forces. Most of America’s biggest trading partners have what are called “export-driven” economies, which means they need to sell more abroad than they buy, because demand within their borders is too weak to sustain strong growth. Sometimes these countries violate the most basic standards of free trade to promote their exports. China, for example, manipulates the value of its currency, which the Economic Policy Institute calculates results in a 30% subsidy to Chinese exports. South Korea severely limits imports of U.S. automotive products, even as its own auto companies press to claim a sizable share of the U.S. market.
And then there is Airbus, a consortium formed by four European nations with the stated intention of competing against America’s commercial transport manufacturers. The plan has worked: two of the three U.S. producers that existed when the first Airbus plane debuted in the 1970s were forced out of the business, while the sole survivor — Boeing — no longer commands even half of the global market. During most of the time that this exercise in socialist industrial policy was unfolding, Washington was too impressed with its own economic prowess to pay attention. But now the industrial might that made America a superpower is slipping away, and policymakers can no longer afford to ignore unfair trade practices. So the Airbus case is a turning point — if Europe won’t play by the rules, penalties must follow.
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