The impact of the retaliatory import tariffs imposed by China on U.S. products is gradually coming to the fore, and the aviation industry is already feeling the heat. To be precise, investors have started reacting to the 25% duty slapped on Boeing (BA) by the Chinese government, and shares of America’s largest exporter fell sharply in early trading Wednesday.
If the trend continues, casting a shadow over the general market sentiment, the Trump administration would have to revisit its tariff policy and weigh meaningful diplomatic intervention to ease the tension. The fact that the U.S. tariffs will take effect only by month-end and Beijing is willing to negotiate the issue gives hope that the standoff would be resolved amicably.
It is important to note that China has other options (read Europe and South America) at its disposal for procuring commodities for domestic consumption. While it is too early to predict where Boeing is headed after the Chinese sanctions, experts believe its long-term outcome would not be pleasant for the aircraft maker.
But one thing is for certain! A trade-off would be in the best interest of both the parties as it is doubtful whether Boeing currently has sufficient resources to cushion a potential market-share depletion.
However, from the investor’s point of view, the situation is not as alarming as it is widely perceived, so it is highly advisable that investors see both sides of the issue before taking the plunge.
Investors have started reacting to the 25% duty slapped on Boeing by the Chinese government
And, there is no prize for guessing who benefits the most from the standoff. China, which is fast emerging as the biggest market for aircraft, appears to be flexing its muscles with enough reason. The Asian giant seems to be confident about the competence of Airbus in meeting its aviation requirements. Or, Chinese companies can try The Commercial Aircraft Corporation of China, the country’s own aircraft manufacturing company that is still at a nascent stage.
A withdrawal from China, which accounted for nearly a quarter of Boeing’s airplane sales in 2017 and is set to become the biggest aviation market in the world, would cost the aircraft maker dearly because orders worth about $1 trillion will be at stake.
But Chinese aviation companies would want to think twice before turning to Boeing’s European rival, considering the complexities involved in the process of incorporating new aircraft models into their fleets without proper preparation.
Boeing’s dependence on China for raw materials is not deep enough to have any significant impact on its operations. But, the company’s exposure to China as a market is huge.
A close examination would show that others in the firing line of China, such as Ford (F), General Motors (GM) and Tesla (TSLA) have similar stories. A day after the Chinese assault, the Dow, S&P 500 and Nasdaq opened significantly lower, before recovering in the latter part of the session.
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