China Might Reduce Boeing Orders In Retaliation To US Tariffs

Just days after being on the cusp of an agreement of a comprehensive trade deal, the United States and China are again at loggerheads. Amid a recent spate of tit-for-tat tariffs, China announced that it may reduce Boeing orders. And the intimation has sent the company’s shareholders into meltdown.

Air China
Boeing orders may be hit by latest US/China tariff skirmish. Photo: Boeing

China’s decision to raise tariffs on $60b worth of U.S. goods was announced on Monday (13/5/19). The retaliation was issued following President Trump’s expansion of levies.

The semi-cordial entente between the two trading giants broke down last week. Trump accused President Xi Jinping of reneging on ‘terms they had agreed to during earlier bargaining rounds,’ writes David Lynch et al. for the Washington Post.

As a result the US slapped further tariffs upon $200b worth of Chinese exports. The $60b Chinese comeback has now seen Trump threaten to tariff all Chinese imports.

In response, China promised further action against US imports. This includes the ceasing altogether of the purchase of U.S. agri-products and a hefty reduction of China’s Boeing orders.

In response to the threats, which were published in the state-controlled newspaper Global Times, shares in the beleaguered aircraft manufacturer fell by 5%. CNBC reports that the slump in Boeing’s share price was the, ‘single contributor to the Dow’s decline among the 30 companies of the index.’

Tariff war

The United States and China have, for a long time, exchanged trading blows. However, the latest escalation of the conflict has unnerved more than ever the country’s investors, industrialists and stock marketers.

Furthermore, for the first time in living memory, the blockage of American goods and expanded tariffs on Chinese goods may impact the average Joe.

Boeing HQ at night
China’s latest threat causes Boeing stakeholders concern. Photo: Boeing

If the US imposes full scale tariffs on China, it could also cause problems for the global economy. The knock-on effect worldwide would see a hike in prices of everyday products such as cell phones and televisions, reports the Post.

Hopes are fading for a clear resolution to the disputes between the two nations. But Trump said he would meet President Xi at the G20 leaders’ summit in Osaka, Japan, in June.

Boeing in China

Boeing and China have become increasingly reliant on each other. The aerospace giant’s business is estimated to enhance China’s economy by more than $1b every year, writes Michael Sheetz for CNBC.

However, China’s Boeing orders were already shrinking prior to the tariff war. Eric M. Johnson et al. for Reuters reported back in March that China had failed to place a Boeing order in 2018, the first year since 2002 that Boeing went without a Chinese requisition.

To make matters worse for Boeing, China has around 4,000 737 MAX on order. But the type has been grounded worldwide since March following two crashes.

Boeing B737 MAX 8
Boeing remains optimistic about outcome of trade war. Photo: Boeing

China has also been developing its own aircraft that it hopes can compete with Boeing and Airbus.

The Comac C919 is a narrow-body twin-jet airliner. Its maiden flight took place on the 5th of May, 2017. However, the program is behind schedule and listed still as being in the ‘flight testing’ phase of production.

The first C919 aircraft is not expected to be delivered to a customer until 2021

Boeing’s reaction

Boeing is one of a handful of major US companies tightly bound to the Chinese economy. Its reliance on the country for revenue makes it especially vulnerable to the latest fracas.

However, despite Buckingham Research Group’s recent cautioning investors about Boeing’s stock and the 2018 slump in orders Boeing remains upbeat.

A spokesperson for the company said in a statement to CNBC: ‘We’re confident the US and China will continue trade discussions and come to an agreement than benefits both US and Chinese manufacturers and consumers.’

Regardless of their bombastic rhetoric, the United States and China have indicated that discussions will continue. Beijing’s trade negotiator Liu He hinted that conciliatory talks may take place in the Chinese capital at an ‘unspecified date’ prior to the G20 summit in June, reports the Washington Post.