March 14, 2018 © Leeham News: Boeing is unlikely to face retaliatory tariffs from China following President Trump’s imposition of tariffs on China’s steel industry.
LNC believes China’s own self-interest for its airline, leasing and aerospace industry would make imposing tariffs on Boeing counter-productive.
Several media reports this week raise the prospect of China retaliating against Boeing, including these at CNBC and The New York Times. Boeing stock is off $10 or 3% in mid-day trading.
LNC believes China won’t impose retaliatory tariffs.
China accounts for about 5% of Boeing’s identified backlog but the total is believed to be much higher when Unidentified customers are included.
Any tariffs would harm the Chinese airlines and lessors that ordered Boeing aircraft. Boeing also will open a 737 finishing center near Shanghai this year. Tariffs would hurt this facility. China is also a supplier on various Boeing aircraft.
If China retaliates with tariffs, LNC believes it will be on other industries. Europe, for example, announced it will retaliate by imposing tariffs on the Harley Davidson motorcycle, Kentucky bourbon and Levi jeans.
Harley Davidson is headquartered in Wisconsin, the home state of Republic House Speaker Paul Ryan. Kentucky is the home of the Senate Majority Leader, Republican Mitch McConnell. Levi’s is headquartered in San Francisco. House minority leader Nancy Pelosi, a Democrat, represents this area.
If China were to retaliate against Boeing, it would more likely be in freezing new orders for an indefinite time, placing them with rival Airbus instead.
The Chinese government routinely uses orders to send political messages.
Deferrals and cancellations in the near-term are unlikely. With a full Airbus backlog, the Chinese airlines and lessors couldn’t turn to Airbus for deliveries before the next decade. Any cancellations or deferrals in the next decade are too far out to be meaningful.
Actually, going by the same argument, China could apply the said tariff onto Boeing aircraft simply as a form of posturing. It would cost airlines more, but they would simply go from one pocket to another other than for a few entities like HNA. That make it seems like they can set tariff as high as they would like to and still make it business as usual
As for finishing center, they could also make it applies to only completed aircrafts and thus exempt those that are finished within facilities in China
Would serve Boeing right after their ridiculous trumped up case against the C Series…..Boeing management have opened up a whole kettle of worms with their ridiculous politicking and may come back to punish the company.
Can’t see it being Boeing specific but rather tariffs on an umbrella of products that includes aircraft?
Not sure who adviced the President on this but Aluminum is a high energy input product, so let someone else burn their money/energy producing it and import cheap.
EU once introduced tariffs before over US aerospace trade practices, Boeing and Douglas weren’t affected, farmers were. Neither BA nor the US steel industry will necessarily be targeted.
While The Donald blusters and has a reputation for opening mouth (advancing throttles) before engaging brain (setting flaps for takeoff), we may not know everything in mind.
Communist China is key to stopping North Korea from spreading nuclear weapon knowledge, as it did with Syria, and attacking other countries (probably South Korea first to unify in poverty – with the threat of nuclear weapons intended to hold Japan and the US back from defending SK). Communist China is being accused of not doing enough to support quarantines against NK.
“Communist China is key to stopping North Korea from spreading nuclear weapon knowledge”
I’m afraid at this point the last horse has left the barn in regards to that.
The big dog with rabies is not Asian. 🙂
Even a modest order of 150 seat CS-300s by a couple of Chinese airlines would be a very interesting shot across the bow.
It would put a little fear in Boeing, be a nice what-for to Wilbur Ross, and (ironically) be helpful to Kansas (and Northern Ireland).
Yeah, probably not going to happen, but they could probably get decent (though not Delta-like) pricing.
About time China ordered some Cseries. After all part of the centre fuselage is made in China ( this may the area causing production delays now, like they did earlier with the certification process).
With Airbus on board as a Cseries partner, they may decide to kick AVIC off the program if some decent sized orders arent forthcoming from chinese airlines
C-series sales to China will come anyway as lots of its structures are made in China. However rush hour traffic at most big Chinese Airports will only be 737-800 and bigger aircrafts leaving the C-series for off peak traffic and not so busy Airports. It can be assembled next to the A320’s in China.
A 2.99% Chinese import tax on the 737’s not from Boeing China delivery center might be a familiar set of numbers to Boeing…
They can easily place tariffs on Boeing AC ordered after a certain date…that would be a message that future orders will go to Airbus.
I think so to! China learn a lot in economies from USA in few years.
Expect a largish A330-800 order from China 🙂
There are other shins to kick than just tariffs.
China doesn t need official tariffs. I am sure that if Xi found it somehow rather appropriate to buy 500 320s instead of 500 737s, just because he “likes them better”, all Chinese airlines would also simply “like the 320 better” and not order any 373s anymore. And Airbus has less of a head ache on how much they should charge more for their products.
And whose engines will these aircraft use?
from wikipedia “CFM International, a joint venture American and French companies to build a series of jet engines”. They may try with Safran SilverCrest .
Assembled by CFM for most Airbus and GE for Boeing. So I do mean Safran assembled Leaps
The problem is any tariffs on Boeing, now or on future products is going to harm China’s economy as well. Xi needs to keep that economy moving to keep his position secure.
Why would China put tariffs on Boeing Aircraft when they instead could merely cancel or freeze orders for Boeing wide-body aircraft?
In so doing the Chinese would surely be sending a message to Trump, while the 737 finishing centre, for example, wouldn’t be hurt. Also, resorting to this type of action would not have any implications with respect to the WTO.
The demand for single aisles far outweighs demand for wide-bodies in China. IMJ, Airbus could easily satisfy the demand for wide-bodies in China during the next decade.
Agreed. At most they will hold up order confirmations like they did with the A330 while buying slots.
Yes. Plenty of A330neo slots available and some A350. None for a long time for A320. They could go with a wide body punishment. But more likely some other products like the EU
I agree – no need for China to apply tariffs. Just freeze orders with Boeing while placing more orders with Airbus and Bombardier.
Boeing is America’s biggest and most successful exporter – it exports 80% of its aircraft and China is Boeing’s biggest export market – when the orders from China dry up panic will set in in Washington (D.C. and State!)
Postpone an order, immediately challenge the rental companies to obtain Airbus widebody, bet tomorrow on the development of regional aviation, commit to buy 300-500 CS300-CS500 made in Mobile, take a stake in a joint venture to manufacture the A380 are all possibilities that can contradict what Scott believes! And let’s not forget that China is building about 50 airports at high altitude, ideal infrastructure for the CSeries and single-aisles. Yes, indeed, Boeing is not at the end of his troubles!
Jon Ostower has returned to blogging, his own this time, very good reading so here is the link.
What about a Brazilian veto against the Boeing Embraer deal?
Brazil exports one third of its steal to the US.
pretty sure A380 program has a lot of slots as well
I don’t see how it’ll hurt Chinese industry by shifting widebody orders to Airbus