How Airbus-Boeing dispute led to higher whisky prices
Published on: 10 November 2024
2004, Airbus revealed the world’s biggest plane.
The Airbus A380.
Across the Atlantic Ocean, Boeing showed the 787.
15 years later, whisky distilleries in Scotland felt the pinch – thanks to these planes.
In 2004, the world was awed by the A380. The 787 did not catch people’s attention as much. But airline companies loved it.
And then, started a feud. Airbus vs Boeing.
Airbus is a European company in the truest of senses.
Its biggest shareholders are governments of countries like France, Germany, and Spain. The remaining shares are owned by various institutional and retail investors.
Similarly, Boeing is a company owned by various institutional investors too.
No single person owns it.
Both these companies are vital in their regions.
They provide thousands of high-paying jobs. They require specialized training and skills that have been perfected over decades.
Naturally, the governments of these countries want these companies to do well.
To help build the A380 jumbo plane, Airbus had taken loans from the governments. These loans were subsidized – the terms were easier.
After the A380 was developed, Airbus took more loans to build the A350.
This is where the rift had started – the loans.
In a fair market, all companies compete with each other. The companies that are able to offer better products at cheaper prices win.
But if the government is supporting a company with cheap loans, the company is unfairly benefited.
It makes it difficult for other companies to fight Airbus. It makes Boeing’s job harder.
Many of Airbus’ biggest clients are in the US.
Airbus getting EU support made the US government unhappy. They felt this was unfair.
They took this matter up with the Europeans.
Airbus had a counter-argument. And that seemed quite fair.
Boeing (being critical to the USA) had received billions of dollars in financial support from the US government.
Airbus said that the direct financial support was unfair.
This discussion dragged on for years. Until 2019 that is.
In 2019, the USA decided to act – instead of just discussing.
They levied a 25% tariff on some European-made airplanes that would be sold in the USA.
This way, they caused the price of these planes to go up – making other planes (like Boeing’s planes) more appealing (cheaper).
They didn’t stop there.
Why?
Because the Americans wanted to put pressure on the Europeans.
They also put tariffs on key items those countries produced – whisky, cheese, olives, cashmere, etc.
The US is a huge market. With these tariffs, many European businesses started seeing lower sales.
Sales of Scottish whisky in America dropped – they had gotten too expensive for many people.
Many whisky distilleries complained they might shut down because the business was no longer viable. Cheesemakers suffered as they had more cheese and fewer buyers.
These European companies, in turn, pressured their governments to do something.
What could they do?
One option was to listen to what the USA was saying. This is why the USA put the tariffs in place.
But obviously, Europe wanted to have its way too.
In 2021, both sides agreed to pause the tariffs for a few years – to negotiate and solve the problem.
That discussion is still on.
Other Motivations
Tariffs are an important tool in governments’ toolbox.
The above examples show us how governments use tariffs to deal with situations that they think are unfair.
That’s not the only use of tariffs.
The USA recently announced that they would increase tariffs on electric cars from China (it was 25%; they are increasing it to 100%).
Why?
Because cheap electric cars from China are too good for their price. They will out-compete American car companies.
The US wants to protect its automakers. Too many jobs are linked to the industry. They cannot afford to see it go down.
Further, every country wants its own companies to be able to develop new technologies. That will not happen if they shut down.
Many times, countries introduce tariffs on imported items for the sake of innovation. They want to see the same products being developed and produced in their own country.
In 2012, Brazil introduced tariffs targeting the import of vehicles.
Their goal was to drive up research and development in the auto sector inside their country.
Many times, tariffs and restrictions are introduced in the interest of national security. Like when Japan put barriers on exporting key chemicals to South Korea.
They are both heavily reliant on the semiconductor industry.
Sometimes, tariffs are introduced to counter dumping.
What is dumping?
Dumping is when one country over-produces an item. The intention is to drive the cost of that item down excessively.
It results in many companies shutting down. It is a technique used to kill off competitors.
In 2013, the European Union put tariffs on Chinese-made solar panels.
They accused the Chinese of selling solar panels at prices below cost price.
Tariffs & Economy
The point is, tariffs are an active part of world trade.
They impact us everyday – whether we realise it or not.
Any car that is not made in India is taxed heavily – 100% of the cost of the car. Similar tariffs apply to electronics also.
China tariffs rare earth metals’ export – critical for electronics, defense, batteries, etc.
Russia has tariffs on who it exports natural gas and petroleum to.
Tariffs have the power to destroy industries. They also have the power to save industries from being destroyed.
And when done right, they even have the power to give birth to industries that did not exist.
Tariffs are a universal part of the economy.
Their nature might change. But they won’t go away.
Hence, it makes sense to keep an eye on them.
The images above were generated using AI tools.
Quick Takes
+Indian markets will observe a holiday on 20 November (Wednesday) due to Maharashtra assembly elections.
+The US Fed has reduced its key interest rate by 0.25% in its November meeting.
+India's forex reserves fell by $2.6 billion in a week to $682.13 billion as of 1 Nov.
+UK’s central bank has reduced its key interest rate to 4.75% in its November meeting (vs a previous rate of 5%).
+Swiggy IPO was subscribed 3.59 times. Retail subscription: 1.14 times.
+ACME Solar Holdings IPO was subscribed 2.75 times. Retail subscription: 3.10 times. Closed for subscription.
+Donald Trump is the new US President, beating the Democratic Party’s candidate Kamala Harris.
+India’s composite PMI (manufacturing + services) rose to 59.1 (vs 58.3 in Sept). Both sectors recorded growth in October.
+India ranked 83rd in the recent Henley Passport Index 2024 report. The Indian passport now allows visa-free access to 58 countries. Singapore topped the list with visa-free access to 195 countries.
+Afcons Infrastructure IPO got listed at a 7.99% discount compared to its issue price.
6-Day-Course
Theme of the week: fundraising
We’ve reached the end of this week’s course that started on Monday. Here’s a test you should take. Get pen and paper!
Question 1:
One of the differences between developed markets and emerging markets is that ____________ .
-Developed markets are more stable
-Emerging markets have lower growth potential
-Developed markets are primarily in Asia
Question 2:
Labor is generally cheaper in emerging countries, which attracts big companies to open factories in such countries.
-True
-False
Question 3:
Which sector do developed countries rely on more compared to emerging countries?
-Manufacturing and services
-Agriculture
-Mining
Question 4:
Stock markets in emerging countries are generally more stable and give lower returns compared to developed countries.
-True
-False
Question 5:
To ____________, investors from developed countries invest in emerging market stocks.
-Reduce risk
-Earn higher returns
-Buy bonds instead of shares
Answers:
Q1: Developed markets are more stable
Q2: True
Q3: Manufacturing and services
Q4: False
Q5: Earn higher returns
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest