Prof KEITH HAYWARD FRAeS analyses the economic reality of the US trade war with China and its likely impact on the aerospace sector.

There was lots of huffing and puffing recently as President Trump’s burgeoning trade war with China sucked in aerospace, and Boeing shares dropped 4% on the news. Pause for reflection and notice is taken of the weight limitation placed on the Chinese tariff. Older Boeing 737s targeted but not the MAX or Boeing’s wide-boded family – yet. And extra cost on Chinese aero-engines (who’s buying these?) into the US – well, not much damage there to aerospace trade. There is also a sense that China’s retaliatory moves are more subtle and laser-guided than President Trump’s salvos. After all, who needs cheap Chinese aluminium? Oh dear, the aerospace sector.

So far we are in the realm of warning shots across trading gun ships’ bows. Extra tariffs on Boeing 787s and the like, or Chinese drones sold at shops throughout the US would be serious. The additional cost of selling pork and orange juice in China is a clear political warning to Trump via his voting base that matters could still get a lot worse.

Technology and IPR

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Boeing recently celebrated the delivery of its 1,000th aircraft to China. (Boeing)

The interesting dimension is Trump’s claim that US importers and collaborators are being forced to give up technology and IPR to China as a condition of doing business. Shock horror to aerospace companies worldwide. Nothing new here: balancing technology transfers against market access is meat and drink to Western companies (and try selling to the Pentagon without close to 100% offset). Industrial espionage may be a different issue, but so far Boeing has given up little to sell its aircraft to China. Airbus has done more, but again relying on innovation to stay ahead of its transfers to Comac for assembling old-style A320s in the People’s Republic.

Who will gain and who will lose?

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Will the US end up by shooting itself in the foot?

The losers here could be purveyors of business jets, which clearly fall behind the higher tariff wall. And who might gain? – Bombardier. In terms of self-foot shooting this is clearly another one for the world’s greatest dealmaker. Having implicitly encouraged Boeing to claim foul on subsidies on the CSeries, with Airbus duly consolidating its place in the North American market, we now have the likes of Gulfstream potentially shafted by the White House.

And if things do get worse (there is a degree of pending measures rather than action in the current exchanges, suggesting that negotiations may yet deliver resolution of the dispute), who might benefit? Our friends in Toulouse of course. Any escalation in US-China trade disputes, the more the Chinese may look to Europe for partners (or Russia for that matter).

The Chinese have long memories, and a clear sense of who is to be trusted and who is not. The UK still has to overcome memories of the ‘Unequal Treaties’ and the Opium Wars of the 19th century in order to do business.

It may be easy to slip into sarcasm when considering current American trade policy, but the serious point is that there is a fundamental ignorance of the complexities of world aerospace trade and industrial relations that seems to be driving decision-making implying dangerous instability for the whole system.

 

Prof Keith Hayward
10 April 2018

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