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China’s tariffs on Boeing aircraft: Much noise and few nuts?

Earlier this week, the United States revealed a list of more than 1,000 Chinese products that will face tariffs of 25%, since the Trump Administration tries to punish China for what it considers unfair commercial practices. Soon after, China responded by announcing plans to impose 25% tariffs on more than 100 US products.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8 em) – sm" type = "text" content = "The products selected by China for the new tariffs include aircraft with empty weights between 15,000 kg and 45,000 kg At first glance, this provision may seem to point directly at Boeing (NYSE: BA) – China is one of the aerospace giant's most important markets However, the rates actually appear to be calibrated to avoid any major impact on the deliveries of Boeing aircraft to China. " data-reactid = "12"> Products selected by China for new rates include aircraft with empty weights between 15,000 kg and 45,000 kg. At first glance, this provision may seem to point directly to Boeing (NYSE: BA) – China is one of the aerospace giant's most important markets. However, the fares really seem to be calibrated to avoid any major impact on deliveries of Boeing aircraft to China.

A category that is becoming irrelevant

The rates announced by China would affect Boeing's largest volume model, the 737-800, which has an unladen weight of 42,901 kg, according to the company. His brothers, the 737-700 and the 737-900ER, also have operational empty weights in the range designated by China.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "However, Boeing is about to eliminate all these models will be replaced by the 737 MAX As the competitor Airbus [19659002] (NASDAQOTH: EADSY) A320neo family, the 737 MAX family presents latest generation engines, which are heavier than engines used for older models. " data-reactid = "15"> However, Boeing is about to eliminate all these models. They will be replaced by the 737 MAX. Like the competition Airbus (NASDAQOTH: EADSY) A320neo family, the 737 MAX family features state-of-the-art engines, which are heavier than engines used for older models.

As a result, the 737 MAX 8 – the successor of the 737-800 – has a curb weight of 45,070 kg. This would be enough to put it outside the scope of tariffs proposed by China. (However, a Reuters story pointed out that China could base its tariffs on the manufacturer's empty weight, a slightly different measure that would put the 737 MAX 8 below 45,000 kg.)

A representation of a Boeing 737 MAX 8 jet

The popular 737 MAX 8 may be heavy enough to avoid China's fares. Image source: Boeing.

The larger models 737 MAX 9 and 737 MAX 10 will naturally also have empty operational weights greater than 45,000 kg. (Meanwhile, all of Boeing's wide-body models have significantly higher empty weights.) Of Boeing's post-2020 products, only the smallest, lowest-speed 737 MAX 7 falls within the weight range established by China.

There could be other gaps

While China seems to have set the weight criteria for its tariffs to avoid hitting the 737 MAX, there are other gaps that could also prevent damage to Boeing. On the one hand, some analysts believe that the rates would only apply to new orders, not to pending orders from Boeing in China.

In addition, it is not clear when tariffs would come into effect, if they do. For now, the United States and China are positioning themselves to return to the negotiating table.

Most importantly, Boeing began the construction of a 737 completion center in Zhoushan last year. This factory will install interiors and will paint around 100 aircraft annually before delivering them to Chinese customers. Completing planes in China could be enough to bypass any tariff, even if the majority of manufacturing was made in the US. UU

China needs Boeing aircraft

Not surprisingly, tariffs proposed by China carry more barks than bites for Boeing. In the long term, China could reduce its dependence on Boeing aircraft. But, for now, there are only two major aircraft manufacturers, and Airbus' popular A320 / A320neo family of aircraft has a portfolio of more than 6,000 unfilled orders. That amounts to nine years of production, even with the highest production rates currently planned.

In theory, Airbus would love to gain market share in China at the expense of Boeing. However, the A320neo family is completely depleted until about 2022. Even beyond that, Airbus probably could not meet all of China's aircraft demand without belittling its own loyal customers in other parts of the world.

Boeing still worried about the growth of commercial tensions between the US UU And China. That is understandable, because in the long run, the business of commercial aviation depends on a robust global trade. But the direct impact of China's aircraft rates on Boeing is likely to be minuscule.

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