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How A Trade War with China Could Hurt Boeing Plants

There are several reasons why a trade war seems imminent, and why it would be particularly bad news for Boeing — as well as other companies and industries.

People who’ve kept tabs on the recent headlines know that some reporters and economic analysts say a trade war between the United States and China seems increasingly likely to happen. Among the companies most at risk if it does is Boeing, one of the most well-known names in the aviation industry.

There are several reasons why a trade war seems imminent, and why it would be particularly bad news for Boeing — as well as other companies and industries.

Numerous Political Factors at Play

On April 4, China made a move that illustrated the possibility of a trade war isn’t just a notion borne purely from fear. China threatened to make more than 100 products from the United States subject to tariffs after making a similar announcement the day before.

However, the possibility of a trade war has loomed for much longer due to strained relations between the United States and China since President Trump’s election. One of his promises under the “Make America Great Again” umbrella was to bring jobs back to domestic workers, and that means being less reliant on China. But, the tensions started before the president took office.

During a "Good Morning America" interview in 2015, Trump said, “[China is] an economic enemy, because they have taken advantage of us like nobody in history. They have; it's the greatest theft in the history of the world what they've done to the United States. They've taken our jobs.”

Then, this January, President Trump’s Office of the United States Trade Representative published a press release related to tariffs for washing machines and solar cells and twice singled out China as being damaging to the U.S. economy.

Boeing Is the United States’ Largest Exporter

Tariffs are particularly harmful to exporting countries because they affect where an importer — China, in this case — gets its goods. Besides being the biggest United States exporter by value, exportation is a huge part of Boeing’s business. It sends over 80 percent of its planes to other countries.

Looking specifically at China, the country has been a long-time buyer of Boeing aircraft. For six years in a row, more than 140 of the brand’s planes have gone to China. The total in 2017 was an all-time high of 202.

It’s also crucial to realize that a trade war with China could prevent Boeing from continuing to capitalize on what is arguably a market ready for and in need of its products. The Chinese demand for airplanes grew even quicker than analysts predicted. Statistics from a 2014 Airbus Global Market Forecast mentioned China as the fastest growing aviation market in the world. Airbus is one of Boeing’s main competitors.

If a trade war happens, other companies that manufacture materials used in the aviation sector could be affected by a trade war that reduces the number of planes exported, too. That means the potential ramifications for airplane-related brands go further than Boeing itself.

Which Actions Could the Chinese Take Against Boeing?

Boeing is on track to open a new plant to finish its 737 planes in Zhoushan, China this year, and experts believe the Chinese government won’t do anything to jeopardize it. Even so, its representatives could potentially put a freeze on its orders with Boeing as a way to send a political message.

In that scenario, China would be unwilling to make a move that halts its aviation sector growth and would likely begin placing orders with Airbus.

China might also hinder Boeing’s expansion plans to introduce a new medium-sized jet that holds 220-260 passengers. If that plane becomes a reality, Airbus previously announced it would do its best to remain competitive by building its biggest jets with improved, carbon-composite wings that make them cheaper to fly.

The Impact on Boeing’s Stock and Future Orders

When news broke about China considering tariffs that would affect the aircraft industry, Boeing’s shares fell by more than four percent before slightly recovering. If imposed, the tariffs would likely apply to airplanes within a specific weight range, one of which is notably the Boeing 737.

An April 5 research note from analysts at Morgan Stanley that surveyed the significance of the situation mentioned, "If the tariff impact to Boeing is isolated to the 737-700 and MAX 7, which account for less than one percent of the backlog, the impact to earnings is limited.” Of the 273 unfulfilled orders China has placed with Boeing, 27 are the kind analysts expect to fall under the tariff.

However, it’s impossible to know the full extent of an imposed tariff until it becomes a reality and not just speculation. If China wants to retaliate against Boeing to make a point, it could make the tariff broader than expected so that it affects all or almost all of the Boeing planes intended for the country.

Which Other Industries and Brands Could Be Impacted?

Reports about the trade troubles say the U.S. and Chinese governments have each threatened tariffs on each other’s automobiles, which could drastically disrupt business models in each country.

Moreover, the companies that make flat-screen televisions could lose $4 billion as a result of a tariff. Tech brands including Lenovo and Apple also have prominent manufacturing bases in China and could be adversely impacted if the tariff threats come to pass.

For now, all anyone can do is wait and see what develops. If the worst-case scenario does play out, manufacturers and consumers from around the world will undoubtedly notice its effects.

Prices could rise for buyers, making it more difficult for people to budget for the things they need. Plus, the disruptions in supply chains that might occur could make it more difficult for companies to meet consumer or client demands while remaining profitable.

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