The collision between the interests of the nation's largest airline and one of its largest manufacturing companies illustrates the trade-offs facing the country as leaders weigh how to create a more durable economic recovery.
Air India got U.S. government support and used it to vanquish the competition. With the help of cheap loans from the U.S. Export-Import Bank backed by American taxpayers, the airline bought Boeing 777s — manufactured in the United States by American workers — and then launched nonstop service between New York City and India’s business capital, Mumbai.
The only problem was that the competition on that route was Delta, which says it was forced to abandon the nonstop daily service it had pioneered two years earlier.
The collision between the interests of the nation’s largest airline and one of its largest manufacturing companies illustrates the trade-offs facing the country as leaders weigh how to create a more durable economic recovery.
On Friday, President Obama toured a Boeing factory in Everett, where those wide-body planes are made, and pressed his plan for building a stronger economy. Key elements include tax breaks to spur domestic manufacturing and a drive to increase exports — in part by helping foreign companies buy American products.
- UW tops new list of best western universities
- Seahawks courting a pair of cornerbacks as free agency looms
- Microsoft co-founder says he found sunken Japan WWII warship
- As USS Ranger departs, Navy's cost dilemma takes off
- Seattle's micro-housing boom offers an affordable alternative
Most Read Stories
But, experts say, Obama’s activist approach to the economy could put him in the position of picking winners and losers. That is likely to mean tens of billions of dollars in additional business for Boeing — a company that has helped power the economic recovery and whose chief executive, James McNerney, chairs Obama’s export advisory panel — but also new challenges for U.S. carriers.
“A clash is inevitable,” said Richard Aboulafia, a vice president with Teal Group, a firm that analyzes the aerospace industry. “Do you want to help manufacturers, or do you want to ensure a level playing field for airlines? It’s an extremely tough call.”
The clash is already playing out in Washington, D.C., where the airline industry late last year sued the federal Ex-Im Bank to stop the $3.4 billion in new loan guarantees being provided to Air India. (Not all airlines participated in the suit.)
Use of the Ex-Im Bank can make it less expensive for the companies to borrow because the U.S. government stands behind the loan.
The airline industry’s lobbyists have enlisted the support of top Republicans to limit the availability of low-cost financing for exports.
Lobbyists for major manufacturers such as Boeing and General Electric are fighting back, warning that if the agency does not expand its program in the next month or two, export-led growth could suffer.
McNerney called on Congress Tuesday to reauthorize the Ex-Im Bank, which he said has helped create 290,000 direct and indirect jobs at more than 3,600 U.S. companies. Renewing the bank’s lending powers has been “shamefully episodic and short term,” McNerney said at a State Department overseas-business luncheon hosted by Secretary of State Hillary Rodham Clinton.
U.S. exporters led by Boeing and Caterpillar, the world’s largest maker of construction and mining equipment, are pushing to increase the bank’s lending limit, which is nearing its ceiling.
The companies lobbied more than 100 lawmakers this month to push for a 40 percent increase in lending, to $140 billion. They said failure to act will cost jobs.
“Ex-Im reauthorization is vital for keeping competitive with foreign rivals,” said McNerney. “It’s certainly more than a Boeing issue.”
Boeing is the behemoth of the export industry and for years has been a top beneficiary of Ex-Im’s programs.
According to the lawsuit, between 2000 and 2010, the bank provided more than $52 billion in guarantees to help foreign airlines buy Boeing aircraft, providing the financing for 950 jet planes. In the past few years, about 60 percent of all Ex-Im’s loans have gone to benefit Boeing, while a third of the company’s jets delivered to customers were backed by Ex-Im support.
Other companies also have won business with the help of Ex-Im, including U.S. makers of turbines, solar technology and trains. While the impact of these programs on other sectors is harder to quantify, Ex-Im’s efforts provide support to foreign industries in countries that could be long-term competitors of the United States, such as India and Brazil.
“Export subsidies is a transfer of money from the United States to others,” said David Weinstein, a Columbia University economics professor. “The more you subsidize exports, the cheaper it is for foreign companies to compete.”
Throughout his term, Obama has advocated shifting the nation’s economic foundation to manufacturing, with an eye toward selling products overseas, especially in fast-growing developing countries. In Everett on Friday, Obama advocated expanding the work of Ex-Im, as well as other steps such as reorganizing the federal bureaucracy to help streamline government efforts to promote exports.
“If we want an economy that’s built to last, we have to do everything we can to strengthen American manufacturing and make it easier for companies like Boeing to create jobs at home and sell their products abroad,” Obama said after his tour of the Boeing manufacturing facility.
Many economists applaud the goal of increasing exports and support efforts to break down trade barriers and enforce international rules that ensure fair trade.
Yet some economists — including Christina Romer, formerly Obama’s top economist — have reservations about some of the president’s proposals, including offering tax breaks to manufacturers. The economists question whether it makes sense for the government to support a sector that has been shrinking relative to service industries.
“It’s very hard for the government to figure out what sectors would be appropriate to help,” said Howard Pack, a professor of business and public policy at the University of Pennsylvania. “If you want policy that will help people, you make research and development more attractive using the same tax revenues that you would be using to stimulate the manufacturing sector.”
Some economists are also skeptical about using tax breaks to try to keep companies from moving jobs overseas or encouraging them to bring jobs back to the United States, as Obama has advocated.
“When you use your tax code to keep the jobs that are going overseas, one of the things you end up doing is reducing the creation of jobs in sectors that are high-paying,” said Weinstein, the Columbia economist. “That’s less clear to politicians, because they see the factory stay in the United States. What they don’t see is, all those workers who end up producing shoes are not producing software. There’s a hidden cost.”
Material from Bloomberg News is included in this report.