International Trade Airbus In North America

International Trade Airbus In Americanorth America Is The Biggest Ma

International Trade: Airbus in America “North America is the biggest market for single-aisle planes. Airbus has forecast that nearly 70 percent of new jet sales worldwide over the next 20 years — 19,200 aircraft worth $1.4 trillion by 2030” (NY Times, June 28, 2012).

a) Airbus, a European plane maker, has announced plans to build its first assembly line in the United States in Mobile, Alabama. What factors (mention three factors) support the decision of Airbus producing in America?

b) Boeing is Airbus’s main competitor and often is favored in Congress because it’s made in America. How would this event affect Boeing?

c) What could the U.S. do to increase its comparative advantage in the production of goods and services that require high-paying jobs?

Paper For Above instruction

International trade decisions, such as Airbus’s plan to establish an assembly line in Alabama, are influenced by a complex interplay of economic, strategic, and political factors. Airbus’s decision to produce in the United States is driven by multiple advantageous considerations that align with principles of comparative advantage, market access, and economic incentives.

First, one significant factor supporting Airbus's move is the strategic desire to access the large and lucrative North American market directly. As the world's largest market for single-aisle aircraft, North America presents a substantial demand for new aircraft, and manufacturing locally reduces logistical costs, tariffs, and delivery times. According to the theory of comparative advantage, firms benefit from producing goods in regions where they can minimize costs and meet local demand efficiently (Krugman, Obstfeld, & Melitz, 2018). Producing aircraft within the U.S. allows Airbus to tailor its products to customer preferences and respond swiftly to market changes, thus improving competitiveness.

Second, cost considerations play a crucial role. By establishing an assembly line in Alabama, Airbus benefits from relatively lower labor costs compared to Europe, especially considering the high wages associated with aerospace manufacturing. According to economic principles, lower input costs increase profit margins and make local manufacturing more economically feasible (Trefler, 2004). Additionally, access to the U.S. skilled workforce and existing supply chains in Alabama mitigates production costs related to input procurement and labor productivity, further supporting the decision.

Third, political and regulatory factors are influential. The U.S. government offers incentives such as tax breaks, grants, and favorable trade policies to attract foreign investment, which Airbus can leverage to enhance its competitive position in the aerospace sector. Moreover, forming a local manufacturing presence helps Airbus mitigate potential trade barriers, such as tariffs or restrictions, that could be imposed on imported aircraft. This aligns with the economic concept of government intervention to correct market failures and promote domestic employment and industrial growth.

Regarding Boeing, Airbus's move to produce in the U.S. may have mixed effects. As Boeing is a domestic manufacturer, Airbus’s local assembly line could create increased competition within the U.S. market, potentially eroding Boeing’s market share or pressuring it to innovate further to maintain its competitive edge. The political favoritism towards Boeing in Congress is based on its status as a U.S.-based company, benefiting from subsidies and domestic employment. Should Airbus expand its manufacturing presence, Boeing might face increased pressure to lobby for more favorable policies or seek additional subsidies to sustain its competitiveness. Furthermore, Airbus's local production could lead to more aggressive price competition, potentially influencing Boeing’s profit margins and strategic planning (Bruton & Roseveare, 2016).

Finally, to increase its comparative advantage in producing high-paying jobs, the U.S. could focus on investing in education and workforce development to supply highly skilled workers for advanced manufacturing sectors. Encouraging innovation and adopting cutting-edge technologies in manufacturing processes can enhance productivity and product quality. Policies promoting research and development, coupled with incentives for technological advancement, would help create a more competitive domestic industry. Furthermore, strengthening intellectual property protections and fostering partnerships between industry and academia could stimulate innovation, positioning the U.S. as a leader in high-value sectors.

In conclusion, Airbus’s decision to produce in the U.S. is supported by factors such as market access, cost advantages, and favorable government policies. While benefiting Airbus, this strategic move also influences Boeing’s positioning, prompting competitive and political responses. To sustain and enhance its comparative advantage in high-paying jobs and advanced manufacturing, the U.S. must continue investing in human capital, innovation, and supportive policies that promote long-term industrial leadership.

References

• Bruton, G. D., & Roseveare, R. (2016). Understanding International Business. Routledge.
• Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2018). International Economics: Theory and Policy (11th ed.). Pearson.
• Trefler, D. (2004). The Case for Free Trade and its Limits. Journal of Economic Perspectives, 18(3), 85-103.
• NY Times. (2012, June 28). Airbus Forecasts an Increasing Share of Global Jet Sales. https://www.nytimes.com