Boeing, Trade Policy, and Trump Tweeting

Kevin Drum is not happy with Trump’s crony capitalism and he graphed the negative hit on Boeing’s stock price after one of his tweets. Apparently this story sent Trump tweeting as it covered some wise comments from the Boeing CEO:

we recognize the vital role IMA plays in reminding regulators, elected officials and the general public about the important—and indispensable—role American manufacturing has in sustaining the U.S. economy and exports, driving innovation and technology, and creating good jobs. This is a topic I’m particularly passionate about because I see it firsthand each day at Boeing, where more than 138,000 U.S.-based employees are hard at work, designing and building some of the world’s most advanced and innovative products—which are in turn sold to customers around the world….Today at Boeing, international sales represent a large and growing percentage of our business….As recently as 2000, only about 35 percent of our commercial backlog was from customers outside the United States. Today, that number is nearly 75 percent….These numbers are even more impressive when you consider that 90 percent of our total workforce and 80 percent of our suppliers are based here in the United States. International sales have helped Boeing become the country’s largest exporter and in turn help support more than 1.5 million American aerospace sector jobs. Admittedly, Boeing, by the very nature of what we do is more global than the average company, but the same trends apply across industries…In the same way that international sales continue to grow as a percentage of our business, so too will competition from abroad. I fully support competition because I believe that it makes us better. There’s no question that Boeing is a stronger, more efficient and innovative company because of fierce competition from our European rival Airbus. And we face increasingly stiff competition from other countries such as Canada, Brazil, China and Russia who are eager to secure a piece of the large and growing aerospace market. However, to compete and win globally we need government’s support to help ensure a level playing field.

He follows this account of his company with a plea not to pursue various policy positions that impact Boeing’s ability to compete abroad. First a brief review of Boeing’s 2015 10-K and then some of my own comments on the trade issues. Boeing’s revenues exceeded $96 billion with pretax income just over $7 billion. Note 21 provides revenues by region. Just over 40% of this revenue is from US customers with 27% of this revenue from Asian customers including China (almost half of the Asian total). Boeing also derives about 12.75 percent of its revenue from Europe and about 11.25 percent of it from the Middle East. Its effective tax rate was only 27.7 percent but that is because Boeing receives R&D and manufacturing tax credits. Only 4.6 percent of its income is sourced abroad. Boeing indeed a US manufacturer that has extensive foreign customers. I’m no fan of the Ex-Im bank, which strikes me as engaging in trade wars. I’m not also a fan of high defense spending. But we should all be wary of starting a trade war with nations like China lest their take their business to Airbus or even decide to start their own company making aircraft. Another thing that concerns me is the macroeconomic mix. If we repeat the mistakes during Reagan’s first term – higher defense spending and tax cuts for the rich combined with a monetary policy that drives up real interest rates – then the dollar will appreciate which will hurt the sales of companies like Boeing. Josh Marhsall covers Trump’s official excuse for the tweet:

This morning Donald Trump lashed out at Boeing claiming its budget for the successor to the current Air Force One is wildly overpriced….According to Politico, the current Pentagon budget for not one but two planes is $1.65 billion.

While $800,000 (thousand - thanks PeterK) for each 747 might seem expensive to some, is Trump suggesting we let the French build these planes? Or maybe he wants to let a new Chinese airline sector submit a bid.