Trade war with China would be bad news for Boeing

Throughout his campaign, President-elect Donald Trump railed against China and its trade practices, saying it has sucked jobs out of the US. His prescription: To prosecute trade cases against the country for its ‘unfair subsidy behavior’ and slap tariffs as high as 45 percent on its exports.

According to Bloomberg, If Trump makes good on his threat to spark a trade fight, chances are that the largest exporter in the US — Boeing — will be one of its first casualties. “China will take a tit-for-tat approach then,” wrote Global Times in an editorial on Nov. 13. “A batch of Boeing orders will be replaced by Airbus.”

Of course, Boeing wouldn’t be the only company to take a hit in the ensuing trade war. Sales to China of everything from American autos and iPhones to soybeans and corn would likely be curtailed or halted in retaliation, according to Global Times. But no company is poised to take it on the chin harder than the Chicago-based aerospace giant.

This year alone, Boeing stands to reap an estimated $11.03 billion from 164 plane deliveries to China. Most of those sales are for narrow-body 737 jets, the company’s most profitable model. Since 2000 the manufacturer has delivered 967 aircraft to China, worth about $60.2 billion at 2016 prices, according to FlightGlobal data crunched by Bloomberg Intelligence.

Boeing is also locked into long-term contracts worth about $1 billion a year with several suppliers in China. Any US tariffs on those contractors would raise Boeing’s production costs, possibly hurting its competitiveness against European archrival Airbus Group.

To bolster its standing in China, Boeing recently announced plans to open a plant there to install seats on 737s being delivered to Chinese carriers — a move Trump also has denounced. “Boeing has to be as worried as anyone,” aerospace consultant Kevin Michaels says of the trade tensions. “It would be horrible and a huge boon to Airbus, which already has an assembly facility there.”

Booming Chinese demand for jets is helping drive up 737 production, which is expected to rise by 12 percent to 47 jets a month next year, and 57 planes a month by the end of the decade. Longer-term, a trade war could cause Boeing to lose a chunk of the estimated $1 trillion market for airplane sales in China over the next 20 years. “Boeing would win more than 50 percent” of that market if past ordering patterns held true, says David Wireman, managing director for aerospace and defense at consultant AlixPartners.

China has an almost insatiable demand for passenger jets as its growing middle class takes to the skies, so it’s unlikely to completely turn away from the US plane maker. Beijing has been adept at playing Boeing and Airbus against each other in a competition to provide it with the lowest-priced jets. But even if it continues to order Boeing’s planes, China could inflict pain by taxing the air frame components the US manufacturer imports from suppliers like Aviation Industry Corp. of China. Or it could sporadically postpone deliveries of Boeing planes — but not Airbus gear — and blame current market conditions for the delays, said George Ferguson, senior air transport analyst with Bloomberg Intelligence. “That could hurt,” he said.

So far, Boeing hasn’t pushed back aggressively against Trump’s rhetoric. “We congratulate President-elect Trump and newly elected members of Congress and look forward to working with them to ensure that US companies can compete, win, and grow our economy to provide good jobs to US workers; as well as preserve American leadership in national security,” Boeing said in a statement.

One consolation prize for Boeing of a Trump presidency could come if he carries out his threat to require European nations to shoulder more of the financial costs of NATO. Boeing, the second-largest US defense contractor, stands to profit from any increase in arms sales to Central and Eastern European nations nervous about NATO’s future.

Until more details of a Trump administration trade policy are made public, any impact on Boeing will remain uncertain. Trump’s trade advisers have suggested that the president-elect could use targeted tariffs to avoid creating conflict with the World Trade Organization. Others have speculated that Trump’s protectionist talk was aimed mainly at whipping up voter support, or perhaps gaining the upper hand in future talks. “We have seen a lot of candidates bashing China when they are running for office but end up at least toning down their rhetoric after taking office,” said Bai Ming, a researcher with the Chinese Academy of International Trade and Economic Cooperation, a think tank under China’s Ministry of Commerce.

For now, Boeing and other exporters can only hope that a Trump administration recognizes that a fracas may yield unintended results. “It would be nice to say the tariffs would have the impact of bringing jobs back home,” Wireman said. “In reality those jobs could well go to another low-cost region.”
 

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