Airbus Subsidies Hurt America

Issue Brief

Revelation 13:18 says the number 666 is a sign of the devil. Maybe it’s just a coincidence that last year’s record-breaking U.S. trade deficit totaled $666 billion, but it’s sure a sign of something bad. Since President Bush took office, the trade deficit has grown by an average of $80 billion each year. It now far exceeds the $515 billion that the government will spend on Social Security in 2005 and is more than twice the outlay for Medicare, shaving about 6% off the size of the economy. Despite the efforts of some creative economists at the Federal Reserve to repeal the laws of supply and demand, there’s little doubt that declining trade competitiveness will hurt Americans over the long run.

The sources of this erosion are complex, and we would probably do well to follow Shakespeare in assuming that “the fault, dear Brutus, is not in our stars, but in ourselves.” We are still the masters of our destiny. On the other hand, it isn’t hard to identify some Brutus-like trading partners who feign friendship while doing everything they can to topple Caesar. Near the top of that list is France, the country that is straining to sell weapons to China, eager to undermine America in global forums, and — not coincidentally — the lead partner in Airbus.

Airbus is the preeminent industrial creation of European socialism, a company sustained by left-wing governments to secure a portion of the global market for airliners through subsidized production. When it was first established, there were three American companies competing in that market. Today there is one, and that last American company — Boeing — is rapidly losing ground to its European rival. Airbus now claims a majority of global orders and deliveries for commercial transports.

Despite its shrinking share of the market, Boeing remains America’s largest exporter of manufactured goods, making it the biggest single contributor to a positive trade balance. But in recent years company management has stressed domestic military business over selling airliners, because the subsidies that Airbus receives from European governments make it very difficult to compete profitably in commercial aircraft markets. Boeing’s last, best hope for remaining a global player is the new 787 Dreamliner, which in many ways is superior to any Airbus offering.

Airbus wants to match the 787 with its own new plane, but unlike Boeing it expects to get loans from European governments to develop its entry that would only need to be repaid if the plane makes a profit. That’s nothing new for Airbus — it used the same subsidies to develop the A330 it hopes to sell to the U.S. Air Force as an aerial refueling tanker. But the Bush Administration has put its foot down and said no more subsidies, since they allow Airbus to compete unfairly with Boeing products.

European negotiators contend that Boeing too gets unfair subsidies from the Pentagon and local governments, but those assertions are flat-out lies. Boeing’s military revenues result from executing competitively won programs, while the local tax-breaks are just as available to Airbus as Boeing. The subsidies Airbus gets are much bigger, and are not tied to performance. The New York Times says they are “corporate welfare,” pure and simple. Forcing Airbus to give up its government handouts won’t eliminate America’s burgeoning trade deficit, but at least it will send a signal that when America promotes free trade, it means fair trade too.