October 8, 2019
By Alan Tonelson
Ever since Boeing ran into safety problems that early this year resulting in the widespread grounding of one of its most successful airliners, authoritative (as opposed to anecdotal) signs have been elusive that the aerospace giant’s woes have been contributing to the slowdown being experienced by domestic manufacturing. This matter matters because a sizable Boeing Factor would rebut claims that President Trump’s tariff-heavy trade policies deserve nearly all the blame for industry’s recent troubles.
Boeing’s commercial jets, after all, haven’t been subjected to any retaliatory duties from tariff-ed foreign economies – largely because the company is half of a practical duopoly (along with Europe’s Airbus) in large passenger aircraft production. As a result, no countries (including China) want to be left with a single supplier. (Possible European responses to American levies on Airbus products authorized by a U.S. win at the World Trade Organization in a trade dispute long predating Mr. Trump’s inauguration could change that situation.)
Moreover, Boeing uses enormous amounts of manufactured intermediates to assemble its planes (which also include military aircraft), and especially durable goods ranging from fabricated metals products to machine tools. So hard times for Boeing will clearly mean hard times for all these suppliers if they haven’t already.
Last Thursday, however, a Boeing Factor finally became clear in official U.S. economic data – specifically in the monthly trade report (which contained figures through August). These statistics reveal that U.S. exports of civilian aircraft began falling sharply on a year-to-date basis beginning in May – just two months after national aviation authorities and airlines around the world began grounding the 737 Max 8 model or banning it from their airspaces.
Skeptics could still contend that a tariff-induced slump in global economic activity has reduced demand for Boeing’s jets, but the trade data also show significant strengthening of civilian aircraft imports, meaning that, at least in the United States, demand remains healthy.
The most important comparison entails the April-through-August results for civil aircraft exports and imports over the last few years. These ensure the best apples-to-apples findings over respectable periods of time.
According to the trade statistics, the U.S. civil aircraft industry dominated by Boeing hasn’t been killing it recently. From April-through-August, 2017 to April-through-August, 2018, its exports declined by 13.94 percent. And then between the same 2018-19 stretch, the rate of deterioration sped up markedly – to 24.51 percent.
Meanwhile, imports of civil aircraft performed a u-turn. From April-through-August 2017 to April-through-August, 2018, they fell by 7.95 percent. But then between the same 2018-19 period, they actually rose – and by a strong 18.37 percent.
Also pointing to a Boeing/civil aircraft-specific problem – the major difference between civil aircraft’s trade performance in recent years and that of domestic manufacturing as a whole. Between the April-through-August 2017 and 2018 periods, while civil aircraft exports were dropping, overall manufacturing exports rose by 6.76 percent. Between the following April-through-August periods, both kinds of exports decreased, but overall manufacturing exports were down only 3.44 percent versus aircraft’s 24.51 percent. And while civilian aircraft imports were surging, overall manufacturing imports edged up only 0.60 percent.
Could this great recent disparity between civil aircraft’s trade performance and overall manufacturing’s trade performance caused the manufacturing slowdown all by itself? Probably not. Current figures aren’t available for civil aircraft as such, much less for aircraft-specific supply chain output. But a 2016 study from the Federal Aviation Administration reported that in 2014, civilian aircraft and parts manufacturing totaled a little more than $100 billion (in 2012 dollars), and that inputs from the supply chain brought the figure up to just under $258 billion.
Since the Commerce Department pegged total American manufacturing output that year at just under $6 trillion (in those same 2012 dollars), civil aircraft production would have represented 4.27 percent of domestic industry’s total. It’s true that that share isn’t overwhelming. But given that the Federal Reserve’s (inflation-adjusted) manufacturing data show that the sector’s after-inflation output has edged down from only +0.90 percent to +0.89 percent between the April-through-August 2018 and 2019 stretches, civil aircraft’s seriously worsening trade situation may bear noteworthy responsibility. And it certainly could be behind a comparable share of the slight (just 0.36 percent) real output decline over the past year that represents manufacturing’s latest technical recession.
A big complication could still put the spotlight back on the trade wars: Although safety problems have plainly hurt Boeing orders and production, and therefore new business throughout its supply chain, civil aircraft production and sales both feature long time lags between orders and deliveries. Indeed, the company says that its backlog is still considerable – and growing.
Nonetheless, it’s also true that the company’s progress toward regaining its reputation has lagged far behind its initial predictions, and new problems keep emerging with the 737s and other planes . In addition, a leading aerospace industry consultancy reported in August that Boeing-related concerns were depressing civil aircraft production globally. And within Boeing, the damage hasn’t been confined to 737 Max production. The safety crisis is affecting output of other airliners, too.
Moreover, other non-trade-related problems obviously have been weighing lately on U.S.-based manufacturing, too – notably the confusion in Europe created by the ongoing Brexit mess and the long-time abject failures of the European Union and Japan to generate respectable growth. For now, there’s little evidence that Mr. Trump’s trade policies have been a net plus for domestic industry (although the counter-factual needs to be mulled, too – i.e., how would manufacturing be faring under a pre-Trump policy regime?). But the same, at very best, can be said for the Boeing Factor.
Alan Tonelson, a columnist for IndustryToday, is founder of the RealityChek blog (alantonelson.wordpress.com), which covers manufacturing, trade, the economy, and national security. He has written for many leading publications on these subjects and is the author of The Race to the Bottom (Westview Press, 2000).