Boeing caught in US-China trade battle

April 05, 2018
Boeing caught in US-China tarriff battle
Boeing's 737 plant in Renton, Washington.

US plane-maker Boeing has emphasized the economic importance of the aerospace industry as it engages the Chinese and US governments on Beijing’s proposal to slap a tariff on its smaller aircraft.

The Chinese included aircraft in a raft of potential retaliatory measures after US President Donald Trump revealed plans to levy a 25 percent tariff on more than 1300 goods from China.

The Chinese reaction comes as a new analysis by OAG suggests China will surpass the US as the world’s biggest aviation market earlier than expected.

Beijing’s tariff would affect aircraft with a net weight of between 15,000kg and 45,000kg. This covers existing Boeing 737s and smallest 737 MAX. Orders of these planes by Chinese carriers accounted for just 5 percent of Boeing’s backlog, according to The Wall Street Journal.

A Bernstein report said there are no Chinese orders at this stage for the Boeing 737 MAX 7 and just 24 for 737 NGs.

The imposts have yet to be levied and US business interests have until May 22 to object to President Trump’s proposals.

The US government then has another 180 days to decide whether to implement the policy and both sides are reported to be in intense behind-the-scenes negotiations.

Boeing issued a short statement saying it was confident that dialogue was continuing.

“While both governments have outlined positions that could do harm to the global aerospace industry, neither has yet imposed these drastic measures,’’ it said.

“We will continue in our own efforts to proactively engage both governments and build on the recent assurances by the US and Chinese leaders that productive talks are ongoing.

“A strong and vibrant aerospace industry is important to the economic prosperity and national security of both countries.”

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The Bernstein report also identified the impact of the tariffs on the global economy, rather than on aircraft orders, as the key issue.

It said the tariffs should have little impact on Boeing’s financial situation, assuming the 737 MAX 8, 9 and 10 models likely to be the subject of future aircraft competitions in China remain unaffected.

“The new tariffs on airplanes, soybeans, and automobiles add to others imposed yesterday,” its said. “Should we see a global recession, this would be highly negative for Boeing and Airbus.”

The importance of the Chinese market to aircraft manufacturers was underscored by a recent analysis by aviation specialists OAG.

The analysis said China was second only to the US in terms of planned aircraft deliveries in 2018, with 342 planes heading to US carriers and 327 to their Chinese counterparts.

Boeing had a clear lead with 219 aircraft compared to 78 from European counterpart Airbus.

The analysis argued China was closing the gap with the US in terms of airline capacity.

It estimated the deliveries would see an increase of 53.3 million seats in China over the full year compared an increase in 15.7 million in the US, where many of the planes were slated as replacements for existing aircraft.

“A significant 37.6 million move forward in closing the 2017 capacity gap between US and Chinese airlines which stood at some 355 million seats with 1,064 billion seats from U.S. carriers playing the 709 million produced by Chinese carriers,’’ it said.

“IATA’s most recent forecast is for China to surpass the United States as the largest air travel market in the next five years, which is two years earlier than expected.

“When allowance is made for additional inbound capacity growing rapidly into the market our assessment is that 2022’s milestone may actually arrive in 2021, trumping all expectations.”