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Aerospace Trade: Trump's Winning Card
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Donald Trump seems not to have noticed yet but the Boeing aircraft company has just handed him a perfect opportunity to target the middle ground in American politics. Boeing has for decades been perhaps the most egregious corporate exemplar of what Trump rightly denounces as the stupidity and spinelessness of U.S. trade policy. That policy is based on David Ricardo’s two-hundred-year-old theory of comparative advantage, which is generally upheld not only by policymakers and media pundits but by almost the entire American business elite. While the wider American public has long sensed that there is something desperately wrong with U.S. trade policy, remarkably few American opinion leaders have hitherto realized that the assumptions underlying Ricardo’s venerable argument are now obsolete. In far too many cases moreover, such people have their own private reasons for tuning out the case against Ricardo. The result is that, in abiding by untrammelled free trade, the United States has condemned itself to a pattern not only of historically unheard-of trade deficits but massive layoffs throughout its once world-leading industrial base.

In the aerospace industry, one of the most obvious problems is that foreign purchases of American airplanes and jet engines are increasingly determined not on a free-market basis but rather are conceived as gambits in aggressive foreign-government-driven economic development programs. Companies like Boeing are asked to transfer key industrial secrets in return for airplane orders. Japan has become particularly skilled in this regard with the result that, almost entirely overlooked in the American media, it now boasts one of the world’s most advanced aerospace industries. Mitsubishi is even planning to launch its own passenger jet in 2017. Think of this as the Toyota Corolla of the air.

What we know for sure is that with each new Boeing, the Tokyo government has insisted that the Japanese industrial system gets not only an increased share of the manufacturing work but the advanced production technology to handle such work. Tokyo has bargained so effectively that Japan’s share of Boeing’s latest plane, the 787, is fully 35 percent. Meanwhile Boeing has retained 35 percent in-house while the rest has been widely allocated around the world. Japan moreover accounts for the plane’s Unique Selling Proposition, its weight-saving carbon-fiber wings which are considered an extraordinary achievement in that carbon fiber is a particularly difficult material to work. In effect the 787, the most advanced passenger jet ever flown, is more a Japanese plane than an American one.

Now, in an initiative announced during Chinese leader Xi Jinping’s U.S. visit in mid-September, Boeing has agreed to set up a manufacturing plant in China.


This represents a remarkable departure for a company that has hitherto always shrunk from manufacturing abroad. Although the new initiative has caused consternation among Boeing’s workers, it has received surprisingly little attention elsewhere. The mainstream media seem to have bought into Boeing’s story that the plant poses no threat to U.S. jobs. Supposedly the Chinese will be confined indefinitely to working on only one family of jets, the 737s, and even then will merely do the last stages of production (so-called “finishing,” most notably installing seats and painting interiors).

Not for the first time where Sino-American trade is concerned, the public relations story makes no sense. For a start Boeing is unlikely to have committed itself to all the trouble and expense of establishing a brand-new plant to do merely its least consequential tasks. As for the Chinese, they have no plans forever to play the back end of a pantomime horse in any industry, least of all such a strategically and economically important one as aerospace. If experience in other industries is any guide, they will increasingly turn the screws on Boeing to transfer ever more sophisticated technology.

There is a scandal here and the key to it is stock options. In return for transferring key technologies, Boeing can expect the Chinese to pay way above the odds for its planes. Thus its short-term profits will be powerfully boosted and so will be the value of top executives’ stock options. Meanwhile it will be years or even decades before the full cost to the American economy will be felt. By then today’s crop of Boeing executives will have long since passed from the stage.

Ultimately the solution is some serious saber rattling by U.S. policymakers. All they need to do is impress on America’s more aggressive partners that access to the American market is not a God-given right. It can be withdrawn if such partners do not play fair.

Chinese exporters in particular need the American market more than the American market needs Chinese exporters. Few American leaders are in a better position to make that point than Donald Trump. He already has the broad mass of the American public behind him on trade. And unlike virtually all his opponents, he is not beholden to Boeing or any of the other multinationals that have been selling America short.

• Category: Economics, Ideology • Tags: Boeing, Donald Trump, Free Trade 
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  1. J Yan says:

    The wide overlap of civilian and military aerospace R&D should be noted. Trillions of taxpayer dollars have been spent on the latter. So, the scope and magnitude of these technology sellouts are quite large.

  2. Buzz Mohawk says: • Website

    Unwise foreign trade moves like this are among the most damaging acts being performed on United States. I am glad to see articles like this describing at least some of these assaults.

    It is reprehensible that trade stories are not properly covered by our mainstream media.

    To our editors and others: Yes Trump is a buffoon, but the buffoon is the only candidate bothering to mention this issue at all. Shame on you for not at least seeing the importance of that.

    When someone is bleeding to death, wise first aiders don’t sit around criticizing the aesthetics or effectiveness of the only bandage or tourniquet available when there is nothing else in sight. They use what they can to save a life, NOW.

    This issue is THAT serious. If you really are smart and you really do care about the future of the United States, you must understand this.


    And okay, if Trump is only talking about trade because it will help him win votes like mine, if he does not intend to really do anything about it, okay, shame on him. But he’s been saying the same things on this topic for years, consistently. No other current presidential candidate has. There is no other first aid in sight for our economic bleeding to death.

    • Replies: @Eamonn Fingleton
  3. @Buzz Mohawk

    I could not agree more that editors have been shamefully remiss in sweeping the trade story under the rug. As someone who has been following the story since the 1980s, I know that the media are far less interested in discussing it now than a generation ago — yet in that time the problem has gone from the merely serious to the totally disastrous.

  4. LondonBob says:

    Trump is smart guy and has done business across the world and so knows how it really works, his opinions are not dissimilar to Sir James Goldsmith’s on this and other matters.

    Was talking to a top German business professor and he talked about Airbus in China, they know they will rip them off in the long term but they only look to the short term so still relocate there, the Asian nations are highly protectionist and someone needs to call them and our business leaders on their policies.

    Jeff Immelt also came to give us a talk and he said GE had a choice Russia or China, they chose Russia as they knew China would be ultimately a blind ally, rife with intellectual theft, highly protectionist, corrupt beyond belief and no legal system.

  5. To be fair, Japan’s commercial passenger fleet is also 99% Boeing (an unheard of percentage for a first-world ecomony) while large U.S. airlines buy huge numbers of Airbus/Embraer/Bombardier airplanes. Airbus also outsources massive amounts of its aircraft development work to the U.S. The A380 Superjumbo contains about 1/3 American content, and Airbus just built a new production line in Alabama.

    The 787 development was also the biggest f*ck-up in Boeing’s history, with a large portion of the problems coming from Japanese suppliers (the Italians were even worse). Which is why the new 777X is being kept largely in-house with Boeing in Washington state, as will future development programs.

    That being said, proper steps should be taken to retain our aerospace industrial base. It takes decades and massive, truly massive, capital investments to build the infrastructure necessary to sustain widebody commercial aircraft manufacturing. To say nothing of the engineering knowledge-base and academic institutions that go along with that. Like Trump says, we have all the leverage.

  6. A reply to Sam Valley:

    You seemed to have misunderstood the point of my article. Japan buys Boeing not out of the kindness of its heart but because Boeing is far more careless and irresponsible than Airbus in transferring key production technologies. Which supplier would you choose if you were crafting Japanese industrial policy?

    In any case, the 787 is quite literally more a Mitsubishi than a Boeing, so it is not surprising that All Nippon Airways and Japan Airlines have been so enthusiastic about it.

    You say that Boeing will do more of the new 777X in-house than the 777. I am not aware of any important way in which Japan’s participation will be curtailed. Are you?

    • Replies: @Sam Valley
  7. @Eamonn Fingleton

    I wasn’t necessarily disagreeing, just playing a bit of Devil’s advocate. I did also mention we should do more to protect our industrial base though, and that we do have all the leverage.

    Japan has been a big Boeing buyer since at least the 1960’s, and Boeing has had a close partnership with the suppliers there for at least as long. The 787 isn’t the first plane that Japan has built major parts for. I’m just saying, in the case of Japan anyway, there is a very long and extensive relationship between Boeing, the Japanese government, and the major heavy industries there.

    Airbus is years ahead of Boeing in outsourcing to China. They built an entire A320 production line there quite a while ago, whereas Boeing is just putting a finishing center there for the 737 (an airplane developed in the 1960’s). China competes hard, and they’re a huge market for airplanes. From Boeing’s perspective they had to throw them a bone I guess.

    In the case of the 777X Boeing will be developing, testing, and producing the all-new composite wings in Everett, WA at their widebody plant. New facilities are being built just for this purpose. This despite the fact that Mitsubishi builds the composite wings for the 787 in Japan, and they had lobbied Boeing hard for the 777X wing work. Boeing got burned very badly on the 787 outsourcing misadventure and will be cleaning up that mess for years to come still.

  8. @Sam Valley

    A second reply to Sam Valley:

    You are right, of course, that the United States should have an industrial policy but such a policy is useless without tough-minded people in Washington prepared to implement it. As for your understanding that the 777X will be more American than the 777, are you sure? While the 777’s wings were unambiguously American, the 777X’s will be less so – my understanding is that crucially they will be fashioned from carbon fiber supplied by Toray of Tokyo. Japan’s work on the 777 was confined largely to making part of the fuselage. Will it make less of the 777X’s fuselage? As announced in July, Japan’s share of the total 777X project will be 21 percent, precisely the same as its share of the 777.

    • Replies: @Sam Valley
  9. MarkinLA says:
    @Sam Valley

    Airbus is years ahead of Boeing in outsourcing to China. They built an entire A320 production line there quite a while ago,

    I think I read somewhere that China is planning to build their own short hop airliner. They will work the bugs out using their own local airlines. Once they have a world class airliner they will offer it for sale to the world and hope to get a lot of the third world’s airline companies for their short runs. Airbus is probably just bowing to the inevitable and hoping to have a piece of it.

    • Replies: @Sam Valley
  10. @Eamonn Fingleton

    You’re probably right about total percentage of 777X not being less Japanese. But Boeing did at least decline to let them develop and build the wings, the most advanced and complex part of the structure. And I’m not sure if there’s a domestic alternative to Toray is there?

    To some extent Boeing likes to share development risk with Japan’s heavy industrial’s the way that Airbus’ development risks are spread amongst the larger countries of Europe. I mean we’re talking $15 to $25 billion to create a new airplane, and then the ROI is measured over decades. And also worth remembering Japan has a very long aviation history. That Mitsubishi plant is making 787 wings is literally the exact same one that made Zero’s for WW2.

    But I do agree the people in Washington negotiating for this country are incompetent or corrupt. Or both. I sure don’t want to fly in some cheap airplane screwed together by a bunch of Chinamen who ripped off designs in a Boeing computer hack. I was just trying to add to the conversation regarding the Japan-Boeing link, I agreed with your article overall and enjoyed it.

  11. Anonymous • Disclaimer says:

    Boeing will manufacture the 777X wings using carbon-fiber supplied by Toray, thereby ascending the learning curve in the manufacture of carbon-fiber based wings. Airbus is doing the same thing with new A350 widebody aircraft whereby Toray supplies the carbon-fiber for the wings of this aircraft.

  12. @MarkinLA

    Yeah I think Boeing and Airbus are both convinced China is a future competitor. At the same time they’re currently a huge customer with deep pockets. Tough position to be in.

  13. @LondonBob

    Trump is a great white shark swimming in an ocean of government created insanity.

    He is as trustworthy as anybody else without a conscience.

  14. Anonymous • Disclaimer says:

    Who’s to say this is not a good bargain for Boeing and its shareholders?

    In exchange for billions of dollars in sales that would otherwise be lost to Airbus, Boeing will transfer technology to China. Boeing executives and shareholders are aware of how technology transfer could (emphasis on could as its not certain of how soon and well a Chinese competitor can emerge) foster a new competitor in the decades (maybe it will take 30 years before a Chinese competitor will manufacture a long haul airplane that is purchased outside of the developing world) to come. This possible scenario should not be considered such a detrimental consequence that in the meantime Boeing and its shareholders could wisely reap increased profits over the short and medium period from this technology transfer for sales bargain.

    Again, whose to say this deal doesn’t reflect good decision making on the part of Boeing?

    • Replies: @Simon in London
    , @MarkinLA
  15. Anonymous • Disclaimer says:

    That policy is based on David Ricardo’s two-hundred-year-old theory of comparative advantage, which is generally upheld not only by policymakers and media pundits but by almost the entire American business elite.

    Fingleton wrongly assumes that American business and policy elites craft US trade policy with the aim to maximize domestic industrial employment, or worker incomes, or production, etc., and are simply failing to meet this objective because they subscribe to theories like Ricardian comparative advantage.

    This has never been the case in the postwar period. The classical, 19th century trading world in which relatively self-contained states trade goods among each other and in which Ricardian comparative advantage and its assumptions of immobility have some applicability has never obtained for US policy and business elites.

    Trade policy as such has never existed in the postwar period. Until the 70s, US elites subsidized and promoted foreign economies and industries in Europe, Japan and elsewhere, and US corporations established subsidiaries within foreign countries that produced and sold goods within those foreign markets, largely for political reasons. Trade balances were taken seriously back then, not because US elites were mercantilists or Ricardian free traders, but because they were Keynesians, and for Keynesians, trade deficits represent demand leakages and for Keynesians demand management is everything.

    In the 80s, US elites abandoned Keynesian demand management, and trade imbalances began to be seen as benign or beneficial by suppressing inflation. Companies began not simply to establish subsidiaries in foreign countries but to distribute their production processes globally. This was and is viewed as a positive and desirable end in itself, for political reasons, regardless of its effects on the domestic economy or workers.

  16. @Anonymous

    Yes, within the frame of the public limited liability corporation whose only legal goal is to maximise shareholder value.
    Outside the Anglosphere, corporations don’t really seem to work like that though. Major corporations remain tied to national interests.

  17. Sean says:

    True as far as it goes but Boeing is not the US and what is good for shareholders in Boeing is not necessarily good for the long term value of the Boeing to the US. Don’t expect any country trying to access US taxpayer-funded advanced technology to give the impression it could be a formidable commercial competitor any time soon, but that is surely their objective. The history of US strategy in Asia is not persuasive evidence of any great prescience, and if Mearsheimer is correct China will probably be in a military conflict with the US in 30 years.

  18. I,ll play devils advocate on this one. Untrammelled free trade? America is quite the protectionist. Free trade is an illusion, whats happened is that the large corporations still control the end products no matter where they are produced, if it suits the 1% and corporates. So they are happy to have their goods produced off shore at the expense of American workers… however when it comes to agricultural products the same corporate protect their american assets with quotas, subsides etc, Other industries also have this protection.

    • Replies: @MarkinLA
  19. The history of countries trying to protect their national economic advantages doesn’t suggest that the US government is likely to do it well whether or not guided by lobbyists or the best of old-fashioned civil servants dedicated to the public good. Merino sheep didn’t remain a Spanish monopoly 200 years ago and by the 1980s Australia’s much improved merino genes were not being kept as some Australian woolgrowers would have liked from the flocks of potential competitors. And Brazil didn’t do well protecting its rubber monopoly in the late 19th century when seeds were taken to Kew Gardens and disease free rubber trees provided to Malayan plantations.

    Then there is the question of how long a monopoly can or should last. Patents for inventions give no more than about 20 year protection.

    Maybe active counter measures like stings with plans of faulty versions will have to be added to heavy penalties for IP theft if America is not to suffer from an even less level playing field than its corporations instinctively seek to take advantage of.

  20. In the investment banking world, where this deferred damage is most prevalent, it’s called


    I’ll be gone, you’ll be gone.

  21. War for Blair Mountain [AKA "Great Battle for Blair Mountain"] says:

    The deskilling of The Historic Native Born White American Work-Force has been going on since the passage of the 1965 Immigration Reform Act. It started with the post-1965 importation of Indian Doctors, and Indian and Chinese Engineers.

    50 years after the passage of the 1965 Immigration Reform Act, the deskilling of The Native Born White American Work-Force continues at an accelerated pace.

    In 2015, there is collusion between the Chinese Fifth Column….the beneficiares of the passage of The 1965 Immigration Reform Act…and Psychopathically Greedy Cheating White Male Liberal Mega-CEOs.

  22. War for Blair Mountain [AKA "Great Battle for Blair Mountain"] says:

    When America was 90 percent Native Born White American….America put 12 Alpha Native Born White American Males on the Moon. And this was during a era in American History when NASA was 95 percent Native Born White American Male.

    This pissed off the China Fifth Chinese legal immigrants and their “American” born gene-line…so much that they went out and bought almost every member of the US Congress and US Senate so that this will never happen again….And in 2016 we have the vaultingly Treasonous TPP Agreement to annihilate Native Born White American Labor.

    • Replies: @Anonymous
  23. Macilrae says:

    This is an excellent article and it covers the aspect of off-shore manufacturing which is usually obscured by the shrill cries of “lost jobs!” because, in the longer term, loss of manufacturing expertise is far, far more devastating.

    Even as far back at the 1960s North American manufacturing quality was declining as the Japanese were picking up speed. While American managers floundered around implementing short term fads such as “management by objective”; “total quality (per Deming)”; “lean manufacturing” and “six sigma” – I say “short-term” because programs which were intended to be implemented over decades were introduced with a frantic enthusiasm, only to be abandoned and replaced within, perhaps, two to three years – the Japanese, followed by the Koreans, stuck to long-term programs with fanatical discipline – and the results are today obvious to all of us in, for example, their world dominance of the automobile industry.

    China is a fascinating case – all of the best aspects of both American and Japanese manufacturing technique have emigrated there. When I first visited China in the 1980s I remember touring a factory making tuners for TV sets that still used vacuum tubes and which were assembled, all by hand, by ladies sitting at a row of school desks. What a contrast today, with the most sophisticated robotic microchip technologies, rivaling silicon valley in quality (though not yet in innovation), and producing for world markets.

    While Western countries still have their lead in creativity (increasingly challenged) the know-how and skills needed to carry out advanced manufacture are hemorrhaging away. It is now extremely difficult to find the professionals needed to staff a factory: starting with your operations manager, purchasing, quality, engineering – all the way to the shop-floor operators. There is so little on-the-job training and the colleges and community colleges are not producing suitably qualified people (not that they were ever that good at it).

    This situation will take a decade to resolve, even if it was decided that we should start today.

  24. MarkinLA says:

    This is the difference between the way the orientals think and western businessmen think. I remember reading a story about Mitsubishi and Chrysler during the Japan Inc days. Chrysler owned about 30% of Mitsubishi stock and was forced to sell it when they were having problems in the 90s and needed to raise cash.

    I remember reading how the Mitsubishi actually had tucked away in their corporate headquarters a 250 year business plan for the company.

  25. MarkinLA says:

    whats happened is that the large corporations still control the end products no matter where they are produced,

    That is until the countries they are operating in decide they no longer own them. While it was easy in the past to convince dumb Americans that a banana plantation in central America was worth sending the Marines in to get back, when China nationalizes an aircraft plant what will the parent corporation do? Right now China doesn’t need to do that they just steal the technology and build their own competing industries but they could resort to nationalization and there is nothing we can do.

    • Replies: @Anonymous
  26. Anonymous • Disclaimer says:
    @War for Blair Mountain

    The TPP is a geopolitical move that deliberately excludes China and is designed to try to contain China economically.

    • Replies: @Clyde
  27. Anonymous • Disclaimer says:

    A plant that is part of a global supply chain derives its value from being part of a global supply chain. As soon as a particular plant were nationalized, its value would decline significantly.

    • Replies: @Sean
  28. Clyde says:

    Thanks Eamonn! I read your books years ago and free trade should have been trashed years ago. Trump will do as well as he can but 50% of the damage has already taken place. We can only hope for the best. I have despised our version of traitorous free trade since 1992 when Ross Perot campaigned against NAFTA. Pat Buchanan did the same that year. By the 2016 election this will make 24 years of wasted time to get rid of free trade.

  29. Clyde says:

    The TPP is a geopolitical move that deliberately excludes China and is designed to try to contain China economically.

    It’s a bullshit deal. You are merely regurgitating a selling point. China will be admitted later which negates your stupid words.
    How much do you want to bet that our trade deficits will not rise with these bullshit “Pacific Partners”?

    • Replies: @Anonymous
  30. Sean says:

    There is nothing valuable about a global supply chain. Building the wings in a different country to the rest of the plane as done with Eurofighters is inefficient. It’s political and done to get countries to participate in the project. Once technical expertise in cutting edge technology is acquired it can be used to make inroads into foreign market.

    • Replies: @Anonymous
  31. Anonymous • Disclaimer says:

    I’m sympathetic to your and Fingleton’s viewpoint, but you and Fingleton are attacking strawmen. American business and policy elites are not crafting trade policy to conform to some ideal of 19th century style, classical free trade with the aim of maximizing US domestic employment or well-being. Since the 70s/80s, so-called trade policy has been about standardizing regulatory regimes and practices in order to allow capital and companies to distribute production processes globally. It has had little to do with traditional trade as such involving relatively autarkic economies trading goods among each other.

    China may be admitted to the TPP later, because containing China is one of the TPP’s aims. Policy elites believe that getting China to conform to a multi-national economic architecture will help contain China economically.

    As far as trade deficits go, in the 70s/80s, US elites abandoned Keynesian demand management, in which trade deficits are regarded as demand leakages to be avoided, and turned to suppressing wage and consumer good inflation. Since then, trade deficits have been viewed as relatively benign or even beneficial by suppressing wage and consumer good inflation. So the view that US elites in general regard trade deficits as very bad things or in the same light as a Pat Buchanan or Ross Perot is simply not true.

    • Replies: @Clyde
  32. Anonymous • Disclaimer says:

    Of course global supply chains are valuable. Supply chains are valuable, “global” or otherwise. “Global” is misleading here. Supply chains across the US and hence not “global” are much longer than those between many countries.

    The Eurofighter is an irrelevant example since as you note it’s a political project. NASA also built its rockets very inefficiently because Congress distributed their production across the US for political and pork-barrelling reasons. This does not mean that there is “nothing valuable” about Walmart’s supply chain across the US. It means that government production is very inefficient.

    “Making inroads into foreign markets” involves supply chains, so saying that supply chains are not valuable in the same comment is quite bizarre.

    • Replies: @Sean
  33. Fingleton is obsessed with the heathen Chinee stealing our precious bodily fluids. He believes the PRC is run by the evil Fu Manchu.

  34. Clyde says:

    Current trade policies have de-industrialized and stripped America. Made us less of a middle class nation. Third world immigration (legal and illegal) is also to blame. The score here is a huge negative for the American people!
    I could care less about your explanations why this all happened. Why the elites originated and continued this policy. I am already aware of this.

    • Replies: @Anonymous
  35. Here’s a foreign point of view from someone of English, Scottish, Welsh and Irish ancestry. I know and like lots of Americans but probably haven’t had anything but the most fleeting interaction with white males with under 115 IQs let alone the 50 per cent at 100 or below.

    It is in my interests and that of my descendants that lots of bright people everywhere go on innovating so that the experience of my father’s generation of dying before they could enjoy a long healthy old age will be replaced by a good number of us and our descendants being able to enjoy 40 or so years after the age of 60. What are the major conditions for this?

    To start with the connection to the American white male of yore seems negligible (I’ve just watched btw a bit of a beat up on how the KKK helped to create the Mafia which was its nemesis. I don’t remember the dénouement but it was the KKK’s support for Prohibition which was the KKK helping to create the Mafia – with starring parts for Jews and Irish as well as Italians. Interesting suggestion that it was J. Edgar Hoover’s obvious – that’s my comment – African ancestry that made him tougher on the KKK than on the Mafia). I just want to see more smart productive people and a halt to the dysgenic breeding habits of just about every First World country – as well as Russia and China, and the smarter people in India, Pakistan and Muslim countries generally….

    Tbc preferably after comments

  36. George says:

    Alternatively, US industrial policy from 2000 onward has been 100% military, so helping Boeing was an afterthought. In particular the resources applied to the F-35 were resources that could have been devoted to the 787. In effect Washington central planers chose the F-35 over the 787. To get the required resources for the 787 project Boeing was forced to move production overseas. So don’t blame Boeing or the Japanese for a decision made by W in DC.

    “Mitsubishi is even planning to launch its own passenger jet in 2017” Assuming Mitsubishi does it, it will join a crowded field including Boeing, Airbus, Sukhoi superjet, Embraer, Bombardier. It may turn out not to be profitable. The engines seem to be Pratt & Whitney PW1000G according to WP, so I wonder how much Japanese content beyond the airframe it will have.

  37. […] Aerospace Trade: Trump’s Winning Card by Eamonn Fingleton for the Unz Review. […]

  38. CanSpeccy says: • Website

    Trump rightly denounces as the stupidity and spinelessness of U.S. trade policy. That policy is based on David Ricardo’s two-hundred-year-old theory of comparative advantage

    It is not the case that US trade policy is based on David Ricardo’s theory of comparative advantage.

    It is true that most of the economists and journalists who favor America’s lunatic trade policy justify it on the basis of Ricardo’s theory of comparative advantage (in fact, Ricardo did not call it comparative advantage, he called it “comparative cost”), but that is either because they are liars or because they have not read David Ricardo and are just parroting what they have heard the liars say.

    Ricardo’s principle of comparative cost is quite subtle, which makes it easy for advocates of the job-destroying, poverty-creating US policy of unrestricted free trade to use it by way of justification of their policy prescription. Those who are unfamiliar with the idea but would like to know what it is would do best to consult Ricardo’s own account of it; but the principle can be stated briefly thus:

    Ricardo demonstrated that for two nations without input factor mobility, specialization and trade could result in increased total output and lower costs than if each nation tried to produce in isolation. (Source: the Dallas Fed.)

    And note the words that I have italicized. What “without input factor mobility” means is without transfer of capital, labor or technology, i.e., without mass immigration of cheap labor, or outflow of capital and technology to cheap labor areas from which finished goods can be imported.

    So while I agree with your critique of US trade policy, for God’s sake don’t blame David Ricardo for it. Ricardo saw perfectly well what harm free trade with input factor mobility would do, and advocated against it, although at the time of his writing, input factor mobility was largely only a theoretical possibility, not a practical reality.

  39. Every great revolution had it’s hooligans.
    Your fall started in 1787.

  40. Anonymous • Disclaimer says:

    Well it’s pretty clear that you’re not at all aware of why this all happened. But that is irrelevant since as you say so yourself you could care less why it happened, only that it did happen. In which case you should stick to decrying that it happened, rather than discussing why it happened, which is the topic of this post and discussion.

    • Replies: @Clyde
  41. Sean says:

    The Chinese government is not a customer in the normal sense. Its strategy is to make the things that are sold in Walmart before moving on to higher value items, such as passenger jets. I don’t see how sending Boeing production facilities to China can be anything to do with economic efficiency. It seems intended to inveigle Boeing (the recipient of much US government subsidy) into a relationship where future technology transfer to China will become impossible to resist.

    • Replies: @Anonymous
  42. Sam J. says:

    Any technology that was paid for by American taxpayers, such as that by Boeing, should get approval before they can transfer it to other countries. On all such request the answer should be no.

    Protectionism will cause a drop in world trade but it can’t be helped. If others are practicing mercantilism and you are not you eventually lose all manufacturing.

  43. Anonymous • Disclaimer says:

    Boeing is a company with huge development costs and, as you note, a recipient of much government subsidy. That such a company would be relatively eager to expand into new markets and willing to transfer technology to do so is not surprising at all since it needs to offset such costs and earn a return.

  44. Sean says:

    I think offsetting costs is properly called maximising profits for the benefit of shareholders. If US policy is still to remain the number one power in the world, it ought to restrain companies like Boeing from selling off technology that was developed with government subsidy and contracts. It is misconceived to ignore that China is certain to use any advanced technological base it develops to equip its armed forces, and those forces are according to John Mearsheimer* quite likely to used against US interests in a few decades.

    *Mearsheimer was proved right over the Russian aggression is Ukraine, WHICH HE PREDICTED two decades ago was coming (if the Ukrainian government did not pay head to the power politics standpoint he advocated). Russia was compelled to assert control of its region by any means necessary, China will be acting the same just as soon as it gets strong enough. bringing that day closer by boosting china is a stupid idea from everyone’s point of view except China’s

    • Replies: @Anonymous
  45. Anonymous • Disclaimer says:

    You need to offset costs just to stay out of the red, so it’s not simply about maximizing profits.

    The 737 is a 50 year old commercial airliner. To stay at the frontier of defense tech, Boeing needs large development budgets, and selling off legacy assets like the 737 which aren’t at that frontier funds those budgets.

  46. Clyde says:

    I have had my eyes on US trade policy since 1988 so buzz off.

  47. Sean says:

    Boeing is supported to keep jobs in the US, then having got those subsidies it goes for profits. This is private profit public subsidy. Holden cited the $8.7 billion in tax breaks that the state granted Boeing in 2013 in return for agreeing to build the 777X here.

    “It speaks to the lack of accountability,” said Holden. “You give away $8.7 billion in tax incentives to maintain and grow aerospace jobs and instead you have work leave.”
    […] In July, Boeing Chairman Jim McNerney talked about moving work overseas after Congress failed to reauthorize the U.S. Export-Import Bank, which guarantees billions of dollars in financing for Boeing’s foreign-jet sales. …] Bob Kapp, founding executive director of the Washington state China Relations Council and former president of the U.S.-China Business Council in Washington, D.C., welcomed the Boeing deal as a useful reminder that the U.S. and China are “joined at the hip economically.”

    He said such strengthening of economic ties between the two countries “is a kind of insurance” that current political tensions and superpower maneuvering — the concern over China’s actions in the South China Sea or its cyberhacking — never break out into a major military crisis.

    China is ten times the size of Japan and on present trends will be more powerful than the US in the medium term. It is not far fetched to think that will result in some kind of conflict. The economic motives of Boeing are not in doubt.

    • Replies: @Anonymous
  48. Anonymous • Disclaimer says:

    Boeing has to make a profit to justify development budgets, which in turn are necessary to stay at the frontier of defense tech. Turning Boeing into a jobs program to maximize domestic employment producing legacy commercial airliners does not put you at that frontier.

    • Replies: @Sean
  49. Sean says:

    Handing China a technology transfer wedge to maximise Boeing’s private profit seems a poor return of the public’s investment. Senator for Boeing means something quite different now. I can’t see into the future, but it is not unlikely that China will be at the frontier itself in a generation, and they will have economies of scale that no US factory can match.

    • Replies: @Anonymous
  50. Anonymous • Disclaimer says:

    We should be clear with the facts here. The 737 is a 50 year old commercial airliner without defense applications. The potential threat is commercial; China’s domestic Comac 919 might, if it’s ever successfully developed and manufactured in the future, take market share away from Boeing in China’s domestic market, which so far has been dominated by Boeing and made up something like 20% of Boeing’s sales last year. Boeing’s domestic US market would be much more protected even if Comac ever made a reliable and cheaper product, just as China’s Long March rockets don’t launch US satellites, despite being reliable and cheaper than Boeing’s expensive United Launch Alliance consortium, for national security and other reasons.

    • Replies: @Sean
    , @Hibernian
  51. Sean says:

    That is all very logical but like the logic and security guarantees western countries gave to Ukraine when they gave up nuclear weapons the rationale (for thinking the equation will remain stable) is faulty. China was the world largest economy up until the 18th century and its current inability to dominate advanced sectors is going to change. It will start acting in ways that are against the interests of the West, but possibly still in the interests of certain western corporation and banks.

    The threat is not merely commercial because China appears to be a incipient Japan, but ten times larger (Japan has been discouraged from building advanced fighter planes by the US and offered special deals in compensation). This is good news for the financial elite but not so much for Western countries as a whole. Why do you think the US fought wars against China in Korea and Vietnam.? Absolutely nothing about China’s behavior (building artificial islands for example) suggests it is operating with the same assumptions as a commercially-minded US corporation. Boeing are selling the pass. John Mearsheimer* says China is fated to become a rival of the US, and by assisting the Chinese to improve their productive capacity is bringing that day much closer. They already have the economies of scale,

    *He predicted in 1994 that if Ukraine gave up nuclear weapons it would be attacked by Russia.

  52. One erroneous assumption of the “comparative advantage” argument is that trade is balanced: if one country sells less than it buys, its currency must fall until balance is restored. This happy situation fails if instead the successful countries lend to the less successful ones, so that the latter can continue buying.

    Eventually our line of credit will be closed. Will we expect the Chinese to treat us with more compassion than we gave to Argentina and other debtors in recent years? Or than the Germans have recently given to the Greeks?

  53. Hibernian says:

    Is the 737 really 50 years old? I think it is an offshoot of the (I believe now discontinued) 727 which was introduced in the ’60s.

  54. tris says:

    my opinion is that, whilst “David Ricardo’s two-hundred-year-old theory of comparative advantage” sounds great as a op-ed justification, it is only being used as a fig leaf to cover the evil intentions which the elite harbour.

  55. George says:

    “Companies like Boeing are asked to transfer key industrial secrets”

    Boeing did not have to move manufacturing abroad, it was forced to by the US government. The F-35 in particular absorbed so much of US aerospace capability that Boeing was crowded out of the US aerospace market by Lockheed Martin.

  56. @LondonBob

    There’s zero evidence anywhere of China ripping off anything significant and, besides, they lead the world in basic research and most technologies these days so the matter is moot.

    Airbus offered China its entire A380 line and China declined: it has little to learn at that level and what it needs it can get in the widebody JV with Russia (which has also learned how to make carbon fiber wings).

    China has the most honest of the major governments by any metric–it’s more trusted than Singapore’s–and it’s only as protectionist as it’s allowed to be under America’s WTO rules.

    Its legal system is also the best in the world. Check the stats: lowest cost, unarmed cops, safe streets, everyone gets their day in court without exception, low crime, low incarceration rate, lowest recidivism, highest public approval.

  57. [There’s no reason to put “[img]” around images and if you do, they won’t render properly.]

    Wonderful article but the window of opportunity began closing when China’s R&D spending passed ours in 2000 and closed ten years ago when it doubled ours. Evidence? The Allen Institute for Artificial Intelligence (Ai2) says China will overtake the US in the most-cited 50% of research papers this year, the top 10% of research papers next years, and the top 1% by 2025. There are now disciplines and industries in which China leads and we don’t even compete.

    Incidentally, Chinese exporters in particular don’t need the American market more than the American market needs Chinese exporters. China, at 18% of GDP, is a below-average exporter–far below Canada or Germany–and its US exports account for just 18% of that 18%.

    In the upcoming trade pact–which we demanded–the US will acknowledge China as a peer, beg for relief from its highly effective soybean embargo and give them six years to implement the agreement, thus clearing the way to China2025.

    As our President himself observed, “People say you don’t like China. No, I love them. But their leaders are much smarter than our leaders. And we can’t sustain ourselves with that. It’s like, take the New England Patriots and Tom Brady and have them play your high school football team.”

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