If there’s a poster child for the tonic the current U.S. government has delivered to the country’s corporate sector, it’s Boeing Co.
Fueled by Chief Executive Officer Dennis Muilenburg’s cozy relationship with President Donald Trump, orders for Super Hornet fighter jets and corporate tax cuts, its 146 percent share-price increase since election day in 2016 has outpaced every other company on the Dow Jones Industrial Average. 1
Thursday’s 3.5 percent fall after Trump tweeted out plans to impose tariffs on metal imports should be a warning sign that, beyond the current clear skies, a storm is building.
One obvious risk is increased costs. About 80 percent of an aircraft’s weight is aluminum, and Trump’s promise to slap levies of 10 percent on imports of that metal represents a pricing handicap in Muilenburg’s endless battle for market share with Airbus SE.
There’s probably no U.S. firm more at risk of trade retaliation from China than Boeing. Of the 10 American businesses that declare more than $5 billion of sales in the country, three — Apple Inc., Las Vegas Sands Corp. and Procter & Gamble Co. — are dependent on consumer spending, so probably somewhat immune to government diktats. Six more are in the semiconductor and tech businesses that China wants to encourage domestically, so they should also enjoy a degree of protection. Against that backdrop, Boeing stands out like a sore thumb. Most of its biggest customers in China are state-owned airlines and lessors affiliated with government-controlled banks. The few independent players could easily be leaned on by authorities to defer existing orders. China Inc. has a sound self-interested rationale for pursuing an aggressive path. Commercial Aircraft Corp. of China Ltd., or Comac, is hoping to pitch its C919 jet as a home-grown competitor to Boeing’s 737 and Airbus’s A320, and announced last month it would make its first delivery in 2021. Using a trade war to put one of the C919’s rivals on the back foot seems the perfect way to crack open the Boeing-Airbus duopoly and advance the interests of China’s own manufacturers. Should the current tit-for-tat over steel and aluminum spiral toward a trade war, few firms will find themselves in a more precarious position than Boeing
Your input is required
Disagree, or have your own opinion? SUBMIT AN ARTICLE TODAY
Feel like commenting? Do you want to join a community of investors and start making money, for free? Then REGISTER now:
We want you to join our community
Benefits of signing up for a FREE membership now:
-No more costly delays in waiting for material
-Dozens of publications per week, including news coverage, earnings commentary, analysis, politics, and more
-Access to special guest contributions, including from WSJ, CNBC, and prolific independent authors
–Ability to comment on articles
–Access to our weekly newsletter
-Publish your own opinion/analysis
Thank you for your readership, and for your loyalty.