An updated list of Chinese products subject to 25% import tariffs in the United States was released this afternoon. The full list of categories is long and it includes a number of aerospace components. And, sure, no one is importing aircraft or communications satellites from China to the USA these days. That’s not a real risk and theoretically the 25% penalty on such would help protect Boeing. But there’s the other side of these trade wars and the impact could be significant.
Boeing’s supply chain is complex and some components do come in from China but those should be relatively small compared to the overall cost of the aircraft or satellite systems involved. Then again, US-based engine manufacturer GE includes a significant amount of Chinese-manufactured components in those products. One category included in the new tariff list is “Parts of airplanes and other aircraft, propellers and rotors and parts thereof.”
And folks, this list is nuclear:
"Parts of airplanes and other aircraft, propellers and rotors and parts thereof"
"Airplanes and other powered aircraft…with an unladen weight over 15,000 kg"https://t.co/NRmYkU91lF
— Jon Ostrower (@jonostrower) April 3, 2018
China will almost certainly retaliate. And there is a very real risk that the retaliation could impact aircraft imports into the country. That could be bring a massive negative impact on Boeing. China remains one of the faster growing commercial aviation markets and is expected to pass the US in total passengers carried sometime in the middle of the next decade. And the pending Boeing order book in China is significant.
The slightly good news is that in the first round of retaliation China chose different products from the steel and aluminum that the US announced tariffs on. Food was the main focus of the initial move on China’s part. But some in China were already calling for including Boeing aircraft in a response package. That the US called out aircraft in the latest round raises potential for that demand to be satisfied.
A few hours after the US list was published China announced “same strength” measures against the USA, according to an AP report. That doesn’t necessarily mean same product categories, but the multi-billion dollar impact will be very real.
There’s also the part where home-grown aircraft are becoming a viable option for Chinese airlines. COMAC’s ARJ21 is hard to take too seriously as a competitor to modern commercial aircraft. One theory suggests it is a training ground for manufacturing processes and automation that will ultimately be put to use on the C919. And the C919 represents a real challenge to the 737 and A320 family aircraft for the Chinese market. A retaliatory tariff by China could tip the scales significantly away from Boeing on future deals and help COMAC nudge forward, even against Airbus.
The C919 uses components from many US manufacturers so it would be important that China be surgical in choosing which products to apply such tariffs on, but this escalating trade war could prove very, very bad for Boeing if such actions are taken.
Beyond commercial aircraft Boeing also sells satellite systems, including to China. With those also on the list of inbound tariffs to the USA a retaliation by China could hurt that side of the Boeing business as well.
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