In July 2016, in response to North Korea’s rising nuclear threat, the US and South Korea announced their decision to deploy the Terminal High Altitude Area Defense (THAAD), an antimissile battery built to intercept short- and medium-range ballistic missiles. China quickly objected to THAAD on the grounds that it would weaken its nuclear deterrence capabilities and decrease Chinese influence in the region. To coerce South Korea to disable and remove THAAD, China launched a year-long campaign of economic retaliation, targeting the consumer goods, entertainment and tourism industries. Though it faded quickly and quietly, the THAAD dispute reveals much about the current limitations of China’s power, as well as its potential.

China specifically raised concerns that THAAD’s X-band radar, which monitors THAAD’s surroundings, had too large a scope and could gain information about China’s military actions further inland. However, US defense officials have pointed out that an existing, similar instrument deployed in Japan has a comparable, marginally smaller scope. While China’s claims were technically weak, they were understandable symbolically. Many Chinese found it concerning for the US to deploy a military weapon on neighboring South Korea’s territory – a neighbor who had been recently improving relations with China.

After over a year of tensions, in late October 2017, South Korea and China suddenly announced that they would work towards improving bilateral relations. South Korean media content started re-appearing on Chinese platforms that had previously stopped showing it, the consumer goods and tourism industries began to pick up their lost momentum, and the short-lived protests against the South Korean conglomerate Lotte Group had mostly ended.

Looking closer, the limited impact of its economic blows reveals the boundaries of Chinese power. The first retaliatory action to make headlines was limiting Chinese viewers’ ability to access and consume South Korean entertainment. Popular South Korean celebrities also cancelled or suspended public appearances in China. Even within the gaming industry, Beijing tightened regulations to make South Korean games’ entry into the market more difficult. These industries have felt some impact from the ban and experienced a decrease in the trade surplus of media content in the first nine months of 2017. Nevertheless, the entertainment industries were not significantly hurt by China’s ban, as they expanded their presence in other markets.

China also targeted certain South Korean consumer products, including food products, cosmetics, and automobiles. South Korean carmakers Hyundai and Kia both experienced the effects of the THAAD dispute and saw significant drops in Chinese sales. Although many companies have felt a negative impact, the decrease in some sales were compounded by other factors like boycotts from Chinese citizens and not necessarily strictly by Chinese policy. The South Korean cosmetic giant AmorePacific cited both stagnation of the domestic economy and the decrease in tourism after March 2017 as reasons for slowing sales growth and decreased operating profit.

As China was and still is the number one provider of tourists for South Korea, tourism was the industry that experienced the largest setback during the THAAD controversy. Chinese policy was partially responsible, as regional travel companies suddenly stopped selling package tours to South Korea, but other factors like concerns for safety and political tensions, anger at Lotte Group, and increased negative perceptions of South Korea also contributed to decreased tourism, one study showed. Overall, the number of tourists fell by 3.29 million in the first nine months of 2017 as compared to 2016, leading to a total $6.8 billion loss for the tourism industry.

The hardest hit by this economic dispute was Lotte Group, the South Korean conglomerate that sold the South Korean government the land it used to deploy THAAD. Before the conflict, Lotte owned more than 100 department stores and supermarkets in China, but since February 2017, the Chinese government closed more than 70 of them, citing safety concerns. Lotte Group closed the remaining stores after large protests at numerous storefronts. Recently, Lotte Group announced that it would sell all of its stores in China, abandoning its previous effort to expand its presence in the Chinese market.

Despite all of these negative impacts, the South Korean economy as a whole did not suffer significantly from Chinese retaliation. In fact, total Chinese exports increased in 2017; in the first eight months of that year, South Korean exports to China rose by 12 percent. Despite China’s economic might, many Chinese businesses rely on South Korean companies as part of their supply chains, which helps explain why only three main industries were hit.

Though it came out largely unscathed by China’s economic attacks, it would be difficult to argue that South Korea – and the US – definitively won this dispute. Granted, THAAD is still fully operational today. However, during reconciliation talks, Seoul assured Beijing that it would not seek additional THAAD deployments nor join a trilateral military alliance with the US and Japan. China may not have achieved its full desired outcome, but it did succeed in placing some boundaries on its neighbor’s future behavior. Meanwhile, the popularity of domestic boycotts bolstered the Communist Party of China’s (CCP) power at home.

More than anything, this dispute demonstrated the scope of China’s global clout. Its failure to effect THAAD’s removal revealed that its international influence remains limited by its integration into the global economy. In other words, China can only tolerate cutting off its corporations from foreign markets up to a point. Moreover, China clearly still faces bigger security questions surrounding North Korea. However, as China’s economic might continues to grow, it could become a more viable tool for asserting Chinese power globally, as well as garnering domestic support for the CCP.

In the coming weeks, the remnants of this heated dispute will fade as the region turns its attention to the 2018 Pyeongchang Olympics. With North and South Korea planning to march under a united flag and create a joint women’s ice hockey team, there are modest signs of peace and hope. But even as the world comes together for 17 days of symbolic unity, the underlying distrust in the region caused by this conflict cannot be swept aside with colorful flags and cheerful processions. While nations applaud each others’ athletic accomplishments, the THAAD battery lies a mere 125 miles away, casting an uneasy shadow over the celebrations.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff, editors or governors.

Recently, the Huffington Post released a widely popular three minute compilation video of Donald Trump repeating the word China with varying degrees of contempt. As apparent in the video, candidate Trump has made attacking China a major plank in his platform, blaming them for America’s economic woes. Pointing fingers at China is not new; the American political right and left have strongly criticized China’s trade policy for many years. Constant bashing of China, especially by influential media figures, has created a dominant discourse that portrays the issue in black and white: Beijing is deliberately using policies like currency manipulation to grow their economy at the expense of other countries. This view is difficult to argue with in light of recent evidence after China, on August 13-15, devalued their currency by 3% against the dollar—the biggest change in value since 1994.  

Intuitively it might seem that the devaluation of the yuan is negative for the United States. In principle, a weaker currency makes exports cheaper and more competitive, attracting export businesses to China. This economic principle is used to explain why the US lost 3.2 million jobs to China between 2001 and 2013, 2.4 million of which were manufacturing jobs. This job loss has led to a strong negative perception in the US regarding China’s economic growth. In a Gallup poll, 40% of respondents thought that China’s rising economic power was a critical threat to the vital interests of the US, and 44% of them indicated it was an important one. However this time, Beijing’s move to depreciate its currency may actually be positive for both countries.

Firstly, it is important to understand that the weak yuan (with respect to the dollar) has hardly been a determining factor when it comes to the US’s trade deficit and job loss. While America has certainly lost several million jobs to China in the past 10 years, the vast majority has been a result of high wages and the high cost of manufacturing in the US. In fact, many jobs have gone to other developing countries such as Mexico, South Korea (800,000 and 70,000 jobs respectively) and India (65% of all offshored IT work). Additionally, the term “losing jobs” is a misnomer, as China’s rapid economic growth has dramatically increased the job market all across the globe, especially in the resource extraction industry and manufacturing of parts that have final assembly in China: a positive-sum game. The United States’ consumer culture, high budget deficit (which, according to the twin deficits hypothesis, can cause a trade deficit) and movement away from relatively low-paying blue-collar jobs have also played a major role in this labor market transformation.

Statistically speaking, the only time Beijing’s currency manipulation was so severe that it significantly reduced the competitiveness of American exports (by making Chinese products much cheaper) was between the years of 2007 and 2009, when the currency was 20-40% undervalued against the dollar. China had good reason to keep their currency artificially low because of the global financial crisis and its negative effects on their export industries. Because of the currency devaluation, their economy stabilized, helping the global economic recovery. However, outside of the economic crisis, Beijing has been careful not to be too anti-competitive, and has allowed the yuan to slowly appreciate against the dollar. Moreover, a high rate of inflation (especially wage inflation) associated with China’s fast economic growth boosts prices and diminishes their currency advantage.

Secondly, the rapid deceleration of the Chinese economy poses a serious threat to both the global and US one—the devaluation of the yuan can help temper this deceleration. China has been growing comfortably at an unbelievably consistent annual growth rate of 10% of GDP for more than a decade, but now is growing at less than 7% with projections for 6% next year. While 7% and 6% economic growth is a desired figure for most economies, China has been growing at much higher levels for a quarter century, and 7% has long been seen as the minimum growth rate needed for social, economic and political stability in a country that still has tens of millions of poor peasants.

Though generally a fast growth rate must reach more sustainable levels in the long-term to prevent a bubble from developing, the current rate of deceleration is too rapid for the world to properly adjust without harm. China has the second largest economy in the world ($10.36 trillion) and is a reliable driver of the global economy; their sudden decrease from a previously consistent 10%-plus economic growth has lowered commodity prices, decreased demand for American and European exports (total imports decreased by 17% in May), and could drag the already relatively anemic world economy into further economic doldrums. The recent currency devaluation serves as a stimulus to their sagging export sector, which faced a whopping 8% decline in July. The devaluation helps reverse their slowdown, or at least tempers the deceleration to the benefit of US exporters and global economic stability: both major US economic priorities.

Finally, the yuan devaluation generally marks a major positive change in Chinese policy. America’s biggest criticism of the Chinese government is its strong hand in the value of the currency and stifling of market forces. However, China’s economy has matured to a certain extent and accordingly, the Chinese Central Bank (CCB) is moving to let the yuan be more receptive to the international market. Due to their slowdown, there has been some capital flight, meaning that money and investment is leaving the country. The immensely volatile stock market signals this. With the downward pressure depreciating the yuan, the CCB satisfied market pressure through devaluation and have promised to let market forces have more power. With that said, the yuan is not completely free floating—the CCB has stated that they still reserve the right to intervene to stabilize the currency. This is an important assurance in order to prevent a massive free fall in the yuan’s value due to the current market volatility. Given their need for stability, they will likely stick to their promise for slow and steady liberalization of their currency market rather than breaking the promise recklessly, which would only create more confusion and distrust.

China’s currency manipulation is a convenient scapegoat for America’s shrinking manufacturing sector and large trade deficit. But even if China had a completely floating currency, jobs would still have left, and China would still have a skyrocketing economy (albeit with more unstable growth). While their recent devaluation may draw ire from Donald Trump and others, it may actually be a gift in disguise, by bringing stability to the weakening Chinese economy in the short-term and bringing the currency closer to the market value in the long-term.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff, editors, or governors.

On December 19th, the EU, on behalf of Airbus, filed a complaint with the WTO accusing the US of providing billions of dollars in subsidies to Boeing in violation of international trade law. These allegations are the latest incident in the now decades-long rivalry between the two aerospace giants who collectively form the world’s largest duopoly.

History

Competition between the two firms began when members of the former European Economic Community established Airbus in 1969 to counteract the domination of US firms such as Boeing, Lockheed and McDonnell-Douglas. By the 1990s, losses and mergers left Boeing as the sole large-scale producer of passenger aircraft in the US, tearing the bulk of the international airliner market between the American company and Airbus.

The rivalry has since largely been driven by each company’s ability to sell new manufactured aircraft to the world’s major airlines. A recent surge in international travel and the rapid growth of airlines such as Lion Air (Indonesia), Emirates (UAE) and IndiGo (India) has intensified competition. Airline expansion is particularly focused in emerging economies where growth far outpaces that of developed countries.

Products

One of the earliest incidents of competition between Boeing and Airbus is that of the Boeing 737 and Airbus A320 family rivalries. Boeing’s release of the first 737 in 1968 marked the beginning of what would become the world’s most successful airliner series. The 737, along with its successors in the 737 Next Generation family (released in 1997), made use of a narrow-body twinjet model designed for flying short to medium distance routes. Airbus’s answer to the 737 came in 1988 with the A320 series, following a similar design and capable of carrying roughly the same number of passengers (approximately 210).

One of the most publicized instances of product rivalry centers around to the two company’s jumbo jets. In 2007, Airbus released the A380 to compete with what was previously the world’s largest airliner, the Boeing 747. Both four engine, double decked, wide bodied aircraft are used primarily for international long distance flights and can each carry over 400 passengers. Recently however, fuel efficiency concerns have called the viability of both aircraft into question, making their fate in the future of aviation uncertain. Forecasts predict limited profitability in upcoming years for the A380. Airbus recently hinted at the possibility of discontinuing the model altogether by 2018. The 747 has witnessed a similar trend and has recently fallen out of favor among major airlines that are opting instead for more efficient long-distance, wide-body, twin jet alternatives.

For Boeing, these alternatives come in the form of the preexisting 767 (introduced in 1982) and 777 (introduced in 1995), the latter of which recently gained minor notoriety for its involvement in two fatal Malaysia Airlines incidents in 2014. The 787 “Dreamliner” (released in 2010) and the 777x (to be released later this decade) will replace 767 and 777 respectively. Airbus’s competing long-distance twin jet airliners primarily consist of the A330 series (released in 1992) and its successors, the A350 XWB (introduced in 2013) and the A330neo (expected release in 2017).

Litigation

In addition to releasing a constant stream of new airliners, each firm has turned to international courts to stifle their competition. In multiple instances, the two have leveled accusations that its rival has been receiving illegal and anticompetitive assistance from its respective government(s).

Airbus, headquartered in Toulouse, France, consists of a manufacturing network involving France, Germany, the UK and Spain and is thus characterized by high levels of international cooperation. Since 1992, these governments have provided as much as $15 billion in “launch aid,” preferential loans (below commercial rates) granted to Airbus to be paid off with interest.

In 2004, launch aid materialized into a legal controversy upon complaints issued by the United States Trade Representative (USTR), initiating one of the longest and most complicated WTO cases to date. Boeing and the USTR argued that Airbus’s launch aid violated international free trade laws and illegally benefited Airbus at Boeing’s expense. The USTR further targeted loans from the European Investment Bank, research and technology funding, and several specific infrastructure improvements as additional forms of unlawful assistance.

Subsequently, Airbus and the EU denied that launch aid constituted an illegal subsidy and in turn leveled their own allegations against the US and Boeing. The EU also filed a parallel complaint to the WTO, arguing that tax breaks granted to Boeing by Washington state, Kansas and Illinois, and research and development programs between Boeing and NASA (among other federal programs) constituted illegal subsidies totaling over $19 billion.

The WTO treated the two complaints separately and released its decision on Airbus’s launch aid in June 2010 and its decision on Boeing’s tax breaks in March 2011. After an arduous appeals process, the organization’s appellate body ultimately reached a conclusion in March 2012 ruling that both parties had received various forms of illegal subsidies. However, technicalities in the report obscured its true meaning; both companies, each seeking to spin the outcome in their favor, claimed victory.

Since the latest ruling, neither the US nor the EU has taken considerable measures to reform their policies. Pre-existing agreements (e.g., contracts predating the WTO decision) offer each rival ample justification to carry on unfazed. Launch aid to Airbus persists while Boeing continues to benefit from generous tax breaks. The trade conflict lingers on.

On December 19^th, 2014, the EU revived the unresolved dispute going once again to the WTO. In its latest charge, the EU and Airbus accused Washington state of continuing to provide illegal subsidies to Boeing through the extension of the previously condemned tax breaks.

Other Controversies

Aside from the subsidy dispute, the two aerospace companies have long been subject to controversy regarding illicit or otherwise morally questionable activities, including bribery. This may be particularly true for Airbus, which has been caught in countless scandals involving the use of bribery to win contracts with foreign governments at Boeing’s expense. These activities have been all but condoned by the French government, which treated the bribery of foreign officials as a tax-deductible expense until 1997. In contrast, the US made bribing foreign officials a federal offense in 1977. France continues to receive criticism from organizations like the OECD for its lax attitude towards bribery.

This isn’t to say that Boeing is guiltless when it comes to surreptitious business practices. Boeing has been involved in several of its own high profile bribery cases, including a scandal surrounding a $23.5 billion Airtanker deal with the Air Force in 2003 in which Airbus was a competitor. Even more damaging is Boeing’s relationship with US security agencies, which has lead to allegations of economic espionage. Though agencies like the NSA make no secret of spying to advance US economic interests, the true extent to which they do so to benefit specific US companies is unclear. It is clear, however, that NSA intelligence through the ECHELON program cost Airbus a $6 billion deal with Saudi Arabia, which was later picked up by Boeing instead.

Future

Based on previous outcomes, it seems unlikely that the EU’s latest complaints with the WTO will be conducive to any meaningful policy changes on either side of the Atlantic. As the WTO lacks serious mechanisms to enforce international trade law, the US and EU would need the willpower to initiate a trade war or reach an out of court settlement if the conflict were to finally be resolved. As the US and EU subsist on high levels of mutual dependence in both a political and economic sense, the former option is exceedingly unlikely.

Both Boeing and Airbus represent massive shares of the US and EU economies, with each employing hundreds of thousands of workers and bringing in billions in export revenue. These factors, coupled with immaterial and emotional elements of the rivalry (e.g., the national pride associated with manufacturing extraordinary aircraft), have the effect of making private sector aircraft production inevitably tied to government involvement.

It therefore seems out of the question to expect either company to completely remove itself from the hand of public assistance. In order to reach a resolution, the US and EU must come to an agreement which minimizes the role of subsidies in the rivalry and balances the effects of whichever subsidies persist. Such an agreement should ultimately allow the products themselves to set the stage for airliner competition rather than government aid.

Additional causes for animosity, such as bribery or the use of industrial espionage, will be more complicated to resolve. With each firm offering similar and reliable products, contract negotiations inevitably involve political and economic favors. But one can hope that efforts by the OECD to curtail the use of bribes as a bargaining chip and trends indicating global poverty reductions will reduce the significance of illicit negotiations as a competitive tactic. And in light of Snowden’s NSA revelations, which cost Boeing a $4.5 billion contract with Brazil, it may be beneficial for US companies if industrial espionage efforts were restrained.

With Boeing and Airbus each continuing to churn out advanced and competitive aircraft, it seems that the airline industry will continue to be dominated by the American and European companies for the foreseeable future. But any major misstep in the production process, a severe loss litigation front or a crippling scandal could lead to either side gaining total control of the market or could potentially make way for a new competitor. With countries such as Japan, Russia and China each seeking to increase their foothold in the airline market, the latter possibility is not implausible. But as is the case with most matters of this nature, the future cannot easily be forecasted.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff, editors, or governors.

Correction: The previous version of this article mistakenly identified Lion Air as “Air Lion.” The article has been corrected.