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Chinese Levy Moderate Tariffs On Some Aircraft Parts

Fears persist that the uncertainty may affect Boeing aircraft sales.

The U.S. trade dispute with China has resulted in new Chinese tariffs, coming into effect last month on aircraft parts coming from the U.S. The tariffs come in two sets: first, a 10% tariff on aircraft seats and refurbished aircraft tires, and second, a more modest 5% tariffs on a variety of parts, including new tires, ignition magnetos, engine distributors, coils and starting devices and some lights.

These are not very stiff tariffs, and they do not apply to many components, so far. Art Abel, a consultant with aircraft remarketer PGA, which moves aircraft into and out of China, notes the tariffs do not apply to commercial aircraft, only a few parts. “We believe [China] will take necessary steps to ensure the inflow of foreign-manufactured airplanes, engines and parts necessary to sustain its burgeoning aviation market, trade disputes notwithstanding,” Abel says.

Abel stresses that tariff policy during the skirmish with the U.S. is controlled by China’s Ministry of Finance. But anything that touches the growth and viability of China’s aviation industry is firmly controlled by two very powerful agencies, the Civil Aviation Administration of China and the National Development and Reform Commission. Abel says the popular measure of the government's effectiveness is its ability to "make the planes fly on time, by whatever means necessary.” He thinks it is unlikely that transitional trade disputes will interfere with that objective.

Of course, there are some possible retaliatory measures that would not hurt air transport. Abel cites an online media report that Airbus execs will discuss an $18-billion order for 180 A320neos with China during an upcoming visit to Beijing. “While it has long been the custom for both airline OEMs to sell airplanes to China in multi-airline packages . . . an order of this quantity and value would be well beyond the norm.”

Boeing and Airbus are both already running at full capacity, but even discussion of so large an order may be a bargaining chip. The U.S. has concluded its trade dispute with Canada, and Europe and Japan seem willing to talk about compromise terms. But China is bigger, prouder and seems less eager to deal.

That could matter a lot over the long term, according to Peter Chang, CEO of Hong Kong’s CDB Aviation, a major lessor of Chinese aircraft. “The current exchanges between the U.S. and China on trade and resulting tariffs have created a situation of uncertainty in the aviation market,” Chang says. “This is not beneficial for Boeing or any other aviation-related manufacturer. We now have a situation where there may well be unintended consequences.”

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