Shares in aerospace giant Boeing (BA 2.25%) were lower by 7.3% as of 11 a.m. today. The move is due to today's implementation of 25% tariffs on goods imported from Mexico and Canada and a 10% import duty on Canada's energy products. In addition, the Trump administration increased tariffs on products from China to 20%.
Why Boeing is impacted
Trade wars are bad news for Boeing. First, Boeing is traditionally the largest capital goods exporter in the U.S., and the company could see a loss of orders if airlines shift orders to a competitor like Airbus, which is headquartered in the Netherlands. Similarly, tariffs may spur renewed investment by regional competitors keen to develop their own airplanes.
NYSE: BA
Key Data Points
Second, the global commercial airplane industry is highly interconnected, and an increase in tariffs could push up suppliers' costs, which would inevitably pass onto Boeing. That could eat into Boeing's profit margins precisely when the indebted company needs to ramp up production of its 737 MAX and keep developmental costs down for the 777X.
Third, trade wars/tariffs not only push up costs but can also cause significant supply chain disruptions. Suppliers may not even be able to provide products, and the hike in component prices could lead them into financial disarray -- something that could force Boeing to alter its supply chain. Investors have already seen the disastrous impact the lockdown measures have had on global supply chains and are not looking forward to more of the same.
Image source: Getty Images.
Storm in a teacup?
The tariffs and retaliatory actions are concerning, but investors need to consider the possibility that they are being imposed for negotiating purposes and will be rolled back quickly. While that looks likely, the market will still stress every possible outcome until a resolution is met among all sides.
