US/Boeing versus Airbus/European Union

There is not much news happening (not earth shaking at least) that I wanted to blog on but the following article prior to the long Labor Day weekend caught my eye. (Well, the forest fires in Los Angeles is being contained, and it is being investigated both as an arson and as a homicide in light of two firefighters' death.) Ever since Boeing moved their corporate office to Chicago, news related to Boeing hits the Chicago Trib and becomes easier to follow. In light of the economic meltdown, large drop in corporate travel (airlines reportedly losing billions in 1st half of 09), the competition on new plane orders becomes more heated between Airbus and Boeing (along with Canadian, Brazilian, Chinese and Russian plane manufacturers intent on breaking up the monopoly by the Big 2).

The following is the recent development on this on-going battle. Excerpted from the Chicago Tribune article today:

"The United States and Chicago-based Boeing Co. scored the first victory in a lengthy trade conflict Friday when the World Trade Organization found that the European Union had provided illegal aircraft subsidies to Airbus SAS.

But the extent of their win, like much else in this clash, was disputed. The only certainty is that the 5-year-old imbroglio, already one of the longest and costliest on record, is far from over, trade experts cautioned."

I had taken the Micro Economics class at VA TECH years ago, and I still do remember the following "ideal." Government subsidies are bad, since it interferes with free market forces. It does not level the playing field for all players. It tips the playing field in favor of another. I will not debate the merits of the European Union's subsidies, which part is legal or not (70 % has been ruled by the World Trade Organization as not illegal).

What I have come to the conclusion are the following. I find it interesting that the US is taking this issue with Airbus at WTO, siding with Boeing. This makes me ask the following questions, what about the farm subsidies to US farmers? What about TARP? What about the billions in Stimulus money to state and local governments? Is this tinkering with market economics? Where is the consistency in government policy related to government subsidies, primarily to US farmers. One may argue these are very different times, and call for very different solutions to different problems. Is the US government right in taking Boeing's case to WTO? In this case, I think so.