Boeing Brings Tariff Worries Down to Earth

Boeing Co. has downplayed the notion that a brewing Sino-U.S. trade war could pose a threat to its business in China, as investors continue to express confidence in the U.S. airplane-maker.

“While both governments have outlined positions that could do harm to the global aerospace industry, neither has yet imposed these drastic measures,” Boeing said in a boeing.mediaroom.com/2018-04-04-Boeing-provides-statement-on-proposed-tariffs-and-the-importance-of-aerospace-to-economic-prosperity" target="_blank">statement on Thursday.

The response came one day after China’s Ministry of Commerce announced (link in Chinese) it will impose steep tariffs on $50 billion worth of U.S. products, including some aircraft. Previously, U.S. President Donald Trump has proposed hefty tariffs on $50 billion of Chinese exports.

The 25% levy — which is based on the weight of an aircraft — is widely expected to have limited impact on Boeing.

The airplanes that fell under the ministry’s targeted category of “a weight between 15,000 and 45,000 kilograms” (33,000 to 99,000 pounds) would mainly involve Boeing’s smaller 737 NG jetliners, which made up a very small part of its China orders, while most of its newer jet orders, like the 737 MAX family, would be exempted.

“Chinese airlines are keen to operate new Boeing airplanes and would not want any tariffs slapped on those jets that could then hinder their expansion plans,” said Saj Ahmad of StrategicAero Research, a Europe-based consultancy.

Ahmad added that Chinese airlines also don’t want to be beholden only to France’s Airbus SE, and the current round of tariffs are of a very narrow scope when it comes to airplanes.

Investors’ reaction was in line with industry analysts’ judgment. Boeing’s shares jumped 3% at close in New York on Thursday, following a 1% drop the day before.

The Chinese air market, which is now dominated by the duopoly of Boeing and Airbus, has been booming in recent years due to the rapidly rising demand for travel from the country’s expanding middle class.

The country is now Boeing’s largest market — the 202 aircraft it sent to China last year made up almost 30% of its total global deliveries.

Boeing predicted in September that China’s commercial airlines will likely buy up to 7,240 new aircraft worth about $1.1 trillion over the next two decades.

Beijing’s airplane levy comes as China aims to build its own aircraft in a bid to reduce reliance on foreign technology. The state-owned Commercial Aircraft Corp. of China Ltd. is now testing a new narrow-body jet, the homegrown C919, which took a maiden flight last year.

However, analysts said the imposition of aircraft tariffs will not help the C919 in the short term.

“This was a jet supposed to enter service this year, and that’s not going to happen. Rather, the service entry is not scheduled until 2020 or beyond. … There is a very long certification road ahead,” said Ahmad.

Contact reporter Mo Yelin (yelinmo@caixin.com)