JS blocked

ATW Editor's Blog

Boeing is a pawn, but not the target, in the US-China trade war


China’s retaliatory 25% trade tariffs on certain goods it imports from the US comes as no surprise. What’s more interesting is how China has limited how the tariff applies to Boeing airliners.

By setting a weight limit on the aircraft that are affected, Beijing has deliberately narrowed the scope of its US airliner tariff to the 737NG. While that’s still not a good situation for Boeing, the damage would have been much worse had it included the new 737 MAX or any of Boeing’s widebodies. Chinese airlines have ordered hundreds of these.

But Beijing also knows that its airlines need these aircraft if they are to continue to grow in line with market forecasts and in synch with China’s national aviation policy. China clearly understands that a strong, expanding air transport industry provides a stimulus to economic growth. Beijing wants both to continue.

So the announcement today, restricting airliner tariffs to the 737NG, signals that Beijing is prepared to target the US commercial aircraft (and aero engine) industry, but also that it understand that its airlines need those new aircraft and can’t get them all from Airbus.

This gives Beijing the negotiating leverage to ratchet the trade war up or down, depending on how the Trump administration reacts to today’s announcement. By increasing the weight up a little on the airliner tariff, the MAX could be included—far more harmful to Boeing (but also more complicated for Chinese airlines with large MAX orders to deal with).

The real target in China’s tariffs on US goods announced so far, however, is President Donald Trump’s core voter base. It’s not the airliner taxes that will do real damage on US soil, but all those 25% price hikes on soy beans, corn, cotton and other crops grown in  rural America—along with orange juice and beef products—where 2016 election voters mostly supported Trump.

So Boeing becomes a pawn in the negotiations that will take place in a trade war that the White House started, but which Beijing will likely be a devilish-smart player to outplay.

Best case, this trade skirmish fades away as the potential harm to America’s farmers becomes obvious. Worst case, this becomes a poker game where the US not so much refuses to blink, but more looks away. In which case, as several US industry analysts have pointed out today, this escalates into a full-blown trade war that could trigger a global recession. In a statement issued by Boeing late April 4, the manufacturer acknowledged that this was the real danger posed by the Trump administration’s needless and reckless provocation of Beijing. “A strong and vibrant aerospace industry is important to the economic prosperity and national security of both countries,” Boeing said.

For airliner manufacturers—be they Airbus or Boeing—an economic recession would be the worst outcome of all. That’s the path toward aircraft order delays and cancelations.

Karen Walker karen.walker@informa.com

Please or Register to post comments.

What's ATW Editor's Blog?

Karen Walker Blog

Blog Archive

We use cookies to improve your website experience. To learn about our use of cookies and how you can manage your cookie settings, please see our Cookie Policy. By continuing to use the website, you consent to our use of cookies.