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Noisy neighbours?

12 October 2017

As Bombardier workers press for more government action over the current trade dispute with Boeing, Andrew Feldhaus, Investment Manager, looks at the potential wider ramifications for the UK, post-Brexit.

Is the current spat between Boeing and Bombardier the first manifestation of the doctrine of ‘America First’? On the face of it, this appears to be a cross-border tussle between two competing companies in the aerospace sector which illustrates a growing tension in bilateral trade arrangements between the US and Canada. However, the ramifications could be quite serious if it sparks a broader trade war which ripples out beyond North America.

At stake is a contract to supply a domestic US airline with smaller passenger jets. Although Boeing does not compete in this market segment, it has alleged unfair competition in that Bombardier has been supported by both the Canadian and UK governments, allowing it to sell the aircraft below cost. The tariffs imposed by the preliminary ruling through the US Department of Commerce are set at 219 per cent, although the process will continue with a final ruling early next year.

Aside from the potential threat to jobs in Northern Ireland, there could be further ramifications for the UK, particularly as it looks to develop new trading relationships post-Brexit. It brings into focus the difficulties of operating in an international trading environment and the forces of protectionism which can lurk within major international companies and economies. For example, the US has always maintained that it is an outward-looking, free-trading economy although on some occasions there has been a mismatch between the rhetoric and the reality.

Both the Canadian and UK governments have applied pressure but, so far, this does not seem to have caused Boeing pause for thought or to consider the broader global picture. Ultimately, the UK could refer the matter to the World Trade Organisation but this could delay matters and, aside from this, there seems to be little that can be done formally as there is no other dispute referral mechanism. 

Arguably, even as part of a larger economic grouping, the UK could still be vulnerable, but hopefully we will see a negotiated solution between the chief protagonists which will also satisfy the US Department of Commerce. The dispute has also been discussed at a senior diplomatic level, with the US President and the UK Prime Minister exchanging views. There should be a second tariff ruling shortly and this will be followed next February when the US International Trade Commission reviews the process and the outcome. 

In free trade terms, the imposition of tariffs is never good news since it encourages a tit-for-tat response and engenders bad feeling on all sides. This highlights the challenge as to how an open free-trading nation such as the UK can operate in a world of restrictive practices and external competing trading blocs. The last thing that anyone needs at this point is a descent into a trade war where no-one will be the winner and protectionism gains a foothold in world trade.  

 

Free movement of goods and services has encouraged global growth and development since the Second World War, with dialogue and consensus showing that free and open trade continues to be an attractive and worthwhile proposition.

Notes to Editors

Redmayne-Bentley is a national investment management and stockbroking firm with almost 40 offices from the Highlands to the south coast of England, Northern Ireland and the Republic of Ireland.

Author: Ruth Peterson

Contact Us: For all press and media enquiries, the first point of contact is media@redmayne.co.uk or by calling 0800 195 2579. Alternatively request call back.

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