What is the Bombardier dispute about? And does it tell us Brexit will be a disaster?

Some say this episode shows us why Brexit will fail on trade. Others claim it merely shows the perils of subsidies and protectionism. Who is right? And what lessons can we draw from this business?

Some 4,000 jobs are under threat in Northern Ireland because the US government has imposed tariffs on imports of Bombardier jets.

Theresa May has strongly criticised the decision and the Government has warned that there could be counter measures.

Some are arguing that this episode shows us why Brexit is going to be a disaster.

Others claim it merely shows the perils of subsidies and protectionism.

Who is right? What will happen next?

And what lessons can we really draw from this business?

So what’s actually happened?

The US Department of Commerce said on Tuesday that it will impose a 220 per cent tariff on imports of 100-150 seat civil aircraft manufactured by the Canadian firm Bombardier.

This was in response to a petition from Boeing, a rival aircraft manufacturer to Bombardier, which claimed that the Canadian firm had received illegitimate public sector subsidies for the manufacture of the aircraft in question, the C-series regional jet, enabling it to sell them in the US at below cost price.

What has any of this got to do with Britain?

Bombardier is a Canadian headquartered firm. But it manufactures in other countries, including Britain, having acquired local firms.

Bombardier’s Queen’s Island plant in Belfast makes the wings for the C-series. Boeing also claims that the UK government unfairly subsidised that plant.

If the new US tariffs make the plane uneconomical (it could triple the cost) those jobs are obviously vulnerable.

The ruling could jeopardise a $5.6bn order from the US airline Delta for 75 C-series jets.

What will happen next?

The US International Trade Commission will make a final decision in February 2018. This can be appealed in the US Court of International Trade. The Canadian government could also try to bring an action against the US in the World Trade Organisation.

But Canada is not waiting around for the legal process to run its course. The Canadian Prime Minister Justin Trudeau has threatened to cancel a purchase of Boeing planes by his country in retaliation.

And the UK Defence Secretary, Sir Michael Fallon, has also suggested a deal signed in 2016 for Boeing to supply 50 Apache helicopters to the British Army, and also future orders, could be “jeopardised”.

Such threats from the UK are complicated, however, by the fact that Boeing also employs 16,500 people in the UK as part of its supply chain.

Have there been unfair subsidies?

This is complicated. Setting up as a large-scale commercial aircraft manufacturer is a massively expensive businesses. The reality is that there tends to be a symbiosis between governments and manufacturers in this sector.

Boeing is generally able to rely on US government defence spending for a steady stream of funding, which helps to finance its development costs. This is similar to the way the UK aerospace and defence firm BAE Systems can generally rely on sales to the UK government under its defence procurement programmes.

The Canadian government has indeed given financial support to Bombardier. It’s also true that the UK government and the Northern Ireland Executive invested in the Queen’s Island site.

But both the Canadian and UK governments insist this financial support is compliant with World Trade Organisation rules on subsidies.

The UK support was permissible under European Union rules since it was designed to promote regional economic development.

Bombardier says the protectionist move is actually the US imposition of tariffs and that the logic of the Commerce Department is “divorced from the reality about the financing of multi-billion-dollar aircraft programmes”.

Does this tell us how weak we are outside the EU on trade?

Simon Tilford of the Centre for European Reform believes so. He has noted that the EU and the US have been quarrelling about state support for Boeing and Airbus (the giant European aircraft manufacturer) for several decades but that this has never resulted in US tariffs on Airbus imports.

He sees this as partly a reflection of the commercial power of Europe: the US would not dare to slap tariffs on Airbus imports because it would be hit by serious counter-measures on Boeing exports to the massive EU market.

Mr Tilford thinks that the UK outside the EU will not have this commercial power in the eyes of Washington in similar disputes and when it comes to trying to do a new free trade with the US.

“This case gives us a real taste of how the UK will be treated in negotiations over a US-UK trade deal post-Brexit, and how vulnerable the country will be,” he says.

But isn’t this really about Donald Trump’s protectionism?

To some extent the Bombardier decision almost certainly does reflect a change of policy from the US administration.

The US Commerce Secretary is Wilbur Ross, a stridently protectionist businessman and financier appointed by Donald Trump.

Steve McGuire, a fellow of the UK Trade Policy Observatory, points out that the United States has picked a fight with Canada, one of its closest allies and major trade partners.

“This, along with the nationalist tone of so much of Trump’s pronouncements on trade, should disabuse the UK from any belief that the special relationship will insulate it from US action in the post-Brexit world,” he says.

But whatever drove this particular decision the case and whatever lessons we might draw about how the UK would be treated outside the UK over trade, the Bombardier case is certainly a timely reminder of how damaging the sudden imposition of export tariffs can be for specific industries – and the severe knock-on impact on jobs.

If the UK crashes out of the EU in 2019 without a transition deal, UK-based car makers, for instance, would face 10 per cent tariffs on all car exports to Europe.

When Theresa May says “no deal is better than a bad deal” - something she repeated after her Florence speech last week - she is effectively saying she is prepared for Britain and its exporters to be hit by new tariffs.

That should be of serious concern to anyone who works in those industries.