Why can the US win the aviation trade war as the Chinese Communist Party strikes Boeing

The trade war between the United States and China has now shifted to the aviation sector. Reports have emerged indicating that the Chinese Communist Party has ordered Chinese airlines to halt the acceptance of airplanes and aircraft components from Boeing in retaliation against the tariff war initiated by U.S. President Trump. The Wall Street Journal has noted that while targeting Boeing may bring short-term victories for Beijing, China stands to suffer significant losses in the process. President Trump criticized the CCP on Tuesday for breaching agreements with Boeing.

According to sources familiar with the matter who spoke to Bloomberg, as part of the ongoing trade war between the two nations, besides instructing Chinese airlines to stop receiving Boeing aircraft, the CCP has mandated these companies to cease purchasing any aircraft-related equipment and parts from U.S. companies.

The directive from the CCP came after retaliatory tariffs of 125% were imposed on U.S. goods last weekend. These tariffs alone would double the cost of buying American-made airplanes and components, making it unfeasible for Chinese airlines to acquire Boeing aircraft.

President Trump was made aware of the latest blow to Boeing by the CCP. On Truth Social, he remarked, “Funny how they just reneged on a major deal with Boeing that was ‘not to be received’ fully committed planes.”

The Wall Street Journal reported that Bernstein Research estimated on Tuesday that among the numerous 737 Max aircraft in Boeing’s inventory, 27 were designated to be delivered to China this year, along with some Boeing 787 and 777F planes. The cancellation of these orders would result in a $1.2 billion cash flow loss.

After two fatal plane crashes involving Boeing in 2019, China became the first country to ground the 737 Max. In recent years, trade disputes between the CCP and the Biden and Trump administrations have led to a shift in Chinese orders toward the European company Airbus.

Considering the substantial demand for new planes by airlines post-pandemic, especially from markets like India, the predicament faced by Boeing in China has not yet had the expected impact on the company. Some planes originally intended for Chinese airlines have been redirected to the Indian market.

Morgan Stanley analyst Seth Seifman mentioned in a report, “We do not believe Chinese demand is critical to Boeing’s growth over the next few years. However, China (market) will remain important in the long term.”

It is impractical to solely transfer Boeing orders to competitor Airbus. Airbus aircraft orders are already filled until the end of the decade. Bloomberg reported previously that Airbus has a backlog of over 8,000 aircraft orders, and the company faces its own supply chain issues leading to delivery delays.

China is projected to account for 20% of global aircraft demand over the next twenty years. While Chinese orders are likely to lean more towards Airbus, the CCP is also counting on its domestically produced C919 to supplement the demand for narrow-body aircraft. However, ultimately, China may have strong incentives to make concessions as both the Chinese-produced C919 and Airbus may not meet the immense jet demand as expected.

Critical to note is that the C919 heavily relies on U.S. components, including the aircraft’s engine – the heart of the plane. The engines of the C919 are produced by a joint venture of GE from the United States and Safran from France under the company CFM International, meaning that despite some parts being assembled in China, the company still relies on Western companies for intellectual property and after-sales service.

The challenge lies in replicating these crucial components within China, a task that local competitors have found difficult to achieve effectively. In the midst of an escalating trade war, if the U.S. cuts off the channels through which Chinese companies access these key components, it could imperil China’s aerospace plans, including the development of the larger C929.

In the aerospace sector, the United States holds a significant advantage over Beijing. The U.S. ban on chip exports to China has already severely impacted Chinese chip manufacturers, and if restrictions on exports to the aviation industry are implemented, the production of the C919 could face severe setbacks.

President Trump has not disclosed his strategy for dealing with this aviation trade war initiated by the CCP.