The costs of U.S. President Donald Trump’s trade strategy are no longer theoretical. During the 2016 presidential campaign, economists warned that Trump’s aggressive approach—threats to abandon the United States’ formal commitments and introduce new trade barriers—would alienate key U.S. partners. Now, the escalating dispute over Canadian and British subsidies of Bombardier, the multi-billion dollar aerospace company with operations on both sides of the Atlantic, is turning the possibility of a trade war into a reality.
In late September, the U.S. Department of Commerce issued a preliminary finding against Bombardier. The investigation found that the company benefits unfairly from the subsidies it receives from Canada and the United Kingdom. These subsidies allow it to sell its jets in the United States at artificially low prices. Under U.S. statutes, such behavior constitutes “dumping,” which means that certain Bombardier imports could be subject to duties totaling almost 210 percent. To put that number in perspective, the current U.S. trade-weighted average tariff is two percent for industrial imports.
The decision against Bombardier evoked harsh replies. Referring to Boeing, the firm that initiated the investigation, Canadian Prime Minster Justin Trudeau stated that he “won’t do business with a company that’s busy trying to sue us.” Moreover, both Trudeau and British Prime Minister Theresa May threatened to cancel pending orders for new Boeing military aircraft.
The White House claims that it is reasonable to defend U.S. economic interests with targeted trade remedies. Trump asserts that American firms suffer from discriminatory policies abroad—including foreign government subsidies like those paid to Bombardier. In the past, the U.S. government has often increased duties when it believes that foreign subsidies provide competitors an unfair advantage. In fact, the United States is one of the world’s most frequent users of anti-dumping and countervailing duties. But Trump is taking things a step further. His solution to any act of protectionism is to respond in kind. Most recently, he raised the
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