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China to Sanction U.S. Defense Contractors Over Taiwan Sales

By Lou Whiteman – Updated Oct 26, 2020 at 10:06AM

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Though not officially named, Boeing's commercial business could be the big loser here.

China intends to hit Lockheed Martin (LMT 1.42%), Raytheon Technologies (RTX 0.46%), and the defense arm of Boeing (BA -0.19%) with sanctions following a move by the U.S. State Department to approve $1.8 billion in arms sales to Taiwan, Bloomberg reported today.

The U.S. government last week said it intends to push forward with a massive arms deal to Taiwan, which has been separate from mainland China since 1949 but which is considered by the People's Republic of China to be a breakaway province.

The weapons to be sold to Taiwan include Boeing-made attack missiles, Raytheon reconnaissance sensors, and Lockheed rocket systems and F-16 fighters.

Crates painted with the U.S. and Chinese flags clash.

Image source: Getty Images.

China will impose sanctions in response to the arms sales "in order to uphold national interests," a spokesman for the China Foreign Ministry told reporters.

It's difficult to see what impact, if any, the sanctions would have on the companies, since U.S. defense contractors do very little business with China. But the tension comes at a difficult time for Boeing because China is an important customer for that company's commercial aviation division.

While the reports say any Chinese sanctions over the arms sales would be limited to the defense side of Boeing, the conflict could make it harder for Boeing to win certification to get its grounded 737 MAX flying again in that country.

The company forecasts that Chinese airlines will need more than 8,000 new passenger airplanes over the next 20 years, the largest share of any country in the world.

Lou Whiteman owns shares of Lockheed Martin. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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