The COVID-19 virus hasn’t just put some Americans flat on their backs. Businesses are also suffering, and perhaps the worst hit are the airlines, which are staring at a downturn unlike anything they’ve seen post-9/11. The International Air Transport Association says the global industry could be more than $113 billion in the red this year.
Analysts agree that the government is likely to step in and help U.S. airlines as they slash schedules and lay off employees. Douglas Holtz-Eakin, a former director of the Congressional Budget Office, told Politico that the case for action on the airlines is urgent because they have “a spillover value to the rest of the economy.”
Treasury Secretary Steven Mnuchin told Congress last week that the administration is considering loan guarantees and tax deferrals for the industry. “We are not looking for bailouts,” he said. “There may be specific industries that are highly impacted by travel that have issues with lending. . . . I would assume the airlines would be on the top of the list.”
Larry Kudlow, head of the White House’s National Economic Council, recently said on CNBC that deferral or temporary repeal of some taxes — such as on fuel — paid by the airlines is on the table.
But now is also a good time to consider other long-term steps to strengthen the U.S. domestic airline industry, including those that have nothing to do with loans or bailouts.
U.S. carriers have long believed that foreign competitors — especially from Middle Eastern carriers — have violated the letter and spirit of the Open Skies agreement, which regulates which airlines get to fly to another country’s airports. The goal of Open Skies is to benefit consumers by providing open entry, with barriers raised only if a government-subsidized carrier is using an artificial advantage to compete unfairly with privately owned carriers.
U.S. senators across the political spectrum, from Democratic senator Bob Menendez of New Jersey to Republican senator Ted Cruz of Texas, have said that the subsidies for Middle Eastern carriers are costing U.S. jobs. They point to studies showing that more than 1,500 jobs are lost for every daily international aviation route lost to unfair subsidies.
The Trump administration recognized the need to take into account changing patterns of trade and subsidies last year when it replaced the existing North American Free Trade Agreement. The recent United States–Mexico–Canada agreement (USMCA) contains new language that safeguards U.S. farmers, auto workers, and suppliers from unfair foreign subsidies. USMCA also includes strict enforcement mechanisms that will make it easier to ensure that future violations are dealt with in a timely fashion.
A similar approach is now called for to rebalance business in the struggling airline industry. This is not about threatening to add new tariffs as part of a trade negotiation, a process that the Trump administration has sometimes handled well and sometimes poorly. Instead, we should convince trading partners to level the playing field and make sure that we enforce existing agreements.
While it’s formulating its approach to the airline industry, the Trump administration should realize that once the COVID-19 virus has passed from the headlines, foreign governments will be under intense pressure to ramp up subsidies to their favored airline carriers in order to regain market share.
The way to stop such a subsidy race is for President Trump to make it very clear that, as far as the U.S. is concerned, it will insist on removing subsidies, not adding to them.