US President Trump’s tariffs would barely raise Boeing’s prices, but could hurt sales

For Boeing’s newer 787, which uses carbon-fiber composite for wings and fuselage, the tariff impact is even less: it would increase Dreamliner costs only by about 0.09 percent. (Reuters)
Updated 07 March 2018
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US President Trump’s tariffs would barely raise Boeing’s prices, but could hurt sales

NEW YORK: President Donald Trump’s plan to slap tariffs on imported steel and aluminum would barely budge the price of a Boeing jetliner or fighter plane, belying fears of a big blow to US industry, aerospace analysts said.
What could have an impact is retaliation by countries such as China, one of Boeing’s biggest customers, if the US goes through with threats to tax imported steel by 25 percent and aluminum by 10 percent, they said.
As one of the world’s largest manufacturers, Boeing provides a window into how double-digit tariffs on raw materials would translate into just a fractional uptick in the cost of finished goods. Boeing makes its planes exclusively in the United States, but nearly 70 percent of the 763 jetliners delivered last year went to customers outside the United States and 22 percent went to China.
Aluminum makes up 80 percent of the weight of older model planes such as the 737 and 777 but only about 12 percent of the cost, according to several experts with direct knowledge of Boeing. The rest is labor, overhead and other expenses.
A 10 percent aluminum tariff would increase the cost of a plane by about 1.2 percent if all of the aluminum is imported. But most of the aluminum Boeing uses is domestically produced, experts said.
“These are big chunks of aluminum that are expensive to transport,” said Eric Redifer, a director in the aerospace practice of industry consulting firm AlixPartners.
He and others estimate only 25 percent to 30 percent is imported, leaving a net impact of about 0.3 percent of a plane’s cost.
Prices of domestic aluminum are likely to rise if tariffs are imposed, although it is unclear how much.
On a mid-sized 737, with a list price of $117.1 million, the cost increase could be less than $200,000, because airlines often receive discounts of 40 percent off list price, and Boeing’s profit margin is about 10 percent.
Boeing declined to comment.
The net effect for steel is similar, even though it makes up less of a typical Boeing plane, said Kevin Michaels, aerospace manufacturing expert at AeroDynamic Advisory, a consulting firm in Ann Arbor, Michigan.
He estimated Trump’s 25 percent tariff on relatively pricey steel would cost US aerospace companies less than $100 million, roughly on par with the overall impact on aluminum. That means the two tariffs would add $150 million to $200 million in cost, or at most about 0.2 percent of $100 billion worth of business jets, jetliners and military aircraft US companies make each year.
For Boeing’s newer 787, which uses carbon-fiber composite for wings and fuselage, the impact is even less. Aluminum makes up 10 percent of the cost, Redifer said. The result: Trump’s aluminum tariff would increase 787 costs about 0.09 percent.
“What will have a material impact is if China retaliates,” said Richard Aboulafia, aerospace analyst at the Teal Group in Fairfax, Virginia. “They are openly searching for ways to express their displeasure and apply leverage. And it doesn’t get any more obvious that going from Boeing to Airbus.”
The country’s thirst for jets is so great, however, that it likely will need planes from both Boeing and European rival Airbus to keep up with demand, analysts said.


China accuses Trump of ‘blackmail’ after new tariffs threat

Updated 28 sec ago
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China accuses Trump of ‘blackmail’ after new tariffs threat

  • Donald Trump asked the US Trade Representative to target $200 billion worth of imports for a 10 percent levy, citing China’s ‘unacceptable’ move to raise its own tariffs.
  • China had offered to ramp up purchases of American goods by $70 billion to help cut its yawning trade surplus with the United States, whereas Trump had demanded a $200 billion deficit cut

BEIJING: Beijing on Tuesday accused Donald Trump of “blackmail” and warned it would retaliate in kind after the US president threatened to impose fresh tariffs on Chinese goods, pushing the world’s two biggest economies closer to a trade war.
Trump said on Monday he had asked the US Trade Representative to target $200 billion worth of imports for a 10 percent levy, citing China’s “unacceptable” move to raise its own tariffs.
He added he would identify an extra $200 billion of goods — for a possible total of $450 billion, or most Chinese imports — “if China increases its tariffs yet again.”
“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods and accept a more balanced trade relationship with the United States,” Trump said in a statement.
Last week, he announced 25 percent tariffs on $50 billion in Chinese imports, prompting Beijing to retaliate with matching duties on US goods.
The US leader warned Friday of “additional tariffs” should Beijing hit back with tit-for-tat measures.
“The trade relationship between the United States and China must be much more equitable,” he said in explaining his latest decision.
“I have an excellent relationship with President Xi (Jinping), and we will continue working together on many issues. But the United States will no longer be taken advantage of on trade by China and other countries in the world.”
China’s commerce ministry immediately responded by saying the US “practice of extreme pressure and blackmail departed from the consensus reached by both sides during multiple negotiations and has also greatly disappointed international society.”
“If the US acts irrationally and issues a list, China will have no choice but to take comprehensive measures of a corresponding number and quality and take strong, powerful countermeasures.”
The news hit stock markets in Asia, where Shanghai shed three percent in the morning, Hong Kong lost more than two percent and Tokyo was one percent lower.
Trump is moving forward with the measures after months of sometimes fraught shuttle diplomacy in which Chinese offers to purchase more American goods failed to assuage his grievances over a widening trade imbalance and China’s aggressive industrial development policies.
China had offered to ramp up purchases of American goods by $70 billion to help cut its yawning trade surplus with the United States, whereas Trump had demanded a $200 billion deficit cut.
The China trade offensive is only one side of Trump’s multi-front battle with the United States’ economic partners as he presses ahead with his protectionist “America First” agenda.
Since June 1, steel and aluminum imports from the European Union, Canada and Mexico have been hit with tariffs of 25 percent and 10 percent, respectively.
“This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods,” Trump said of China’s retaliatory tariffs.
“This is unacceptable.”
Two decades ago, China’s economy was largely fueled by exports, but it has made progress in rebalancing toward domestic investment and consumption since the global financial crisis erupted last decade — limiting the damage trade tariffs could inflict on Beijing.
Still, strong exports this year have lifted the economy, which is now showing signs of losing steam under the weight of Beijing’s war on debt, launched to clean up financial risks and rein in borrowing-fueled growth.
Initially, 545 US products valued at $34 billion will be targeted by China, mimicking the Trump administration’s tariff rollout.
Beijing wants to “demonstrate that things will be done their way or not at all,” said Christopher Balding, an economics professor at Shenzhen’s HSBC Business School, who believes Chinese policymakers prefer demonstrations of “power and control” over “technical policy rightness.”
“It is a game of chicken,” Balding said.
So far Beijing has targeted major American exports to China such as soybeans, which brought in $14 billion in sales last year, and are grown in states that supported Trump during the 2016 presidential election, as well as other politically important products.
Officials also drew up a second list of $16 billion in chemical and energy products to hit with new tariffs, though China did not announce a date for imposing them.
More American targets are likely to follow as soon as the Trump administration follows through with publishing an expanded tariff list.