Industrial policy in the aviation sector: Whys, Hows, and Why Nots

Commercial aviation would seem a natural place for industrial policy to play a role. Jetliners sit at the confluence of high-skill, high-wage manufacturing jobs, national technology development and leadership, national transportation development, and national security. Today, the U.S. aviation industry is strong, though key national champions, particularly Boeing, have recently come through a very rough patch indeed.

In pursuit of this aviation industrial policy, there are a variety of direct and indirect mechanisms that policymakers can employ. Government technology development funding via the Department of Defense (DoD) and NASA are the clearest paths, but there are a wide variety of other tools available. The most effective policy options are those that do not distort markets.

Yet the arguments against government industrial policy for civil aviation are also quite strong. Chief among them is that the US has a commanding lead in the world aerospace industry, and a policy that promotes this industry is both unnecessary and likely to invite retaliation. In addition, governments have a very poor track record of successfully selecting products and technologies.

Another factor is the World Trade Organization Agreement on Trade in Civil Aircraft (ATCA). This 40+ year old treaty eliminates tariffs and other trade barriers. It has been extremely effective in growing the market and boosting U.S. industry competitiveness. As discussed below, ATCA is also jeopardized by some of the measures that might be superficially appealing as government industrial policy tools.