How the US-China Trade War Affects Aircraft Purchase – Community News
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How the US-China Trade War Affects Aircraft Purchase

As Joe Biden no doubt knows, a year in politics is a long time. In the 12 months since he squeezed past Donald Trump in the 2020 presidential election, the 46e The US president has struggled to unite an electorate driven by mistrust and tribalism, and to “build better” in the wake of the Covid-19 pandemic.

On the global stage, the controversial withdrawal of US troops from Afghanistan, the climate change emergency and the ongoing trade war with China have dominated Biden’s foreign policy agenda.

The latest issue made headlines again in September when US Commerce Secretary Gina Raimondo accused the Chinese government of preventing its domestic airlines from purchasing significant numbers of US-manufactured Boeing aircraft as part of a 2020 trade deal with the previous government.

“There are tens of billions of dollars worth of planes that Chinese airlines want to buy, but the Chinese government is standing in the way,” Raimondo was quoted by Reuters as said after a question-and-answer session following a speech in Washington.

In a subsequent radio interview, Raimondo confirmed that she was referring to China’s blocking of purchases of Boeing aircraft. “The Chinese have to abide by the rules. We have to keep their feet to the fire and hold them accountable,” she said. On the same day, Boeing shares fell 2.6% to $218.41.

China’s aviation market is ready for launch

China is critical to Boeing’s bottom line. The country accounts for a quarter of the orders of all aircraft by the American manufacturer. CEO Dave Calhoun has urged the US to keep human rights and other disputes separate from trade with Beijing, stating, “We can’t afford to be locked out of that market.”

Boeing estimates that by 2040, Chinese airlines will need 8,700 new aircraft — worth $1.47 trillion based on list prices — 1.2% higher than the previous forecast of 8,600 aircraft made in 2020.

The Civil Aviation Administration of China (CAAC) wants that demand to be met domestically. Nikkei Asia reports that in 2020, the three major Chinese airlines – China Southern Airlines, China Eastern Airlines and Air China – postponed the delivery of 58 aircraft from Boeing and 53 from Airbus and instead chose to receive aircraft from the domestic manufacturer Comac (Commercial Aircraft Corp of China).

The decision appears to be further evidence of Comac’s strategic importance, as China appears to be competing with US and European manufacturers in the medium-to-large commercial jet market.

At the heart of this strategy is the C919 narrow-body jet, a competitor to both the Airbus A320 and Boeing 737, which will enter service on all major Chinese airlines later this year.

China would like to see Comac as big as Boeing or Airbus,” said Daniel Morris, chief analyst for aerospace, defense and security at GlobalData. “The major Chinese airlines have withheld shipments from abroad but continued to accept them from Comac as a sign of support for their national aircraft maker, a sign that the CCP would prefer to see money spent domestically.

“In addition, Comac currently only produces small regional jets, and since commercial aviation is still not fully open after the pandemic, it is likely that Chinese airlines did not see the need for larger foreign aircraft.”

Grounded in Reality: Why the US and China Need Each Other

Raimondo’s comments followed an announcement in June that the US was in talks with Beijing to restore the country’s Boeing 737 Max aircraft. The Chinese aviation authority has yet to approve the return of service for the plane after two fatal crashes involving the 737 Max in 2018 and 2019.

As reported in the Wall Street Journal, the US and EU have responded to concerns that Comac could eventually break their aircraft duopoly by agreeing to end their 17-year trade dispute over government subsidies to Boeing and Airbus — and present a united front (or species) against China .

Despite all the political stance on both sides, the evidence suggests that in an increasingly globalized world, China needs American companies like Boeing just as much as Boeing needs China.

“I can’t see much to say there is a significant fight; it’s more like diplomatic sparring,” Morris says. There is a mindset that China knows that its aviation market is so large that companies would be willing to bend their needs to meet the demands.

After all, it turns out that only finished aircraft are refused entry to China.”

In other words, the US and Europe cannot live without the income and jobs that the Chinese market provides them – especially since China’s rapid recovery from the pandemic, the booming budget aviation sector and the increasingly prosperous middle class – while, for now at least, China has airframes required.

“The C919 is in many ways a western aircraft,” writes Jon Sindreu in the Wall Street Journal. “Comac’s role in assembling the aircraft tube and wings is relatively simple, representing only about 25% of the cost, as Patriot Industrial Partners consultant Alex Krutz points out.

“The rest, including avionics, is supplied by US companies such as Honeywell and Collins Aerospace, and European companies such as Meggitt and Liebherr. The C919’s engine, the most difficult part of the aircraft to build, was made by a joint venture between General Electric and Safran.”

Could China pose a threat to US/EU dominance in commercial aviation?

However, as Sindreu points out, by focusing on short-term profit, Western companies can sow the seeds of their own destruction. China has proven that it can catch up in other key industries such as cars, trains and digital technology. Once it gets the hang of making airframes, what’s to stop Comac from replacing foreign suppliers with domestic ones, further eroding US and EU dominance?

After the C919 was a no-show at China’s largest air show in September, reports emerged that Comac was struggling to meet certification and production targets due to recent changes to US export regulations.

The new military end-user export list, published by the US Department of Commerce in December 2020, essentially prohibits the export of technology to entities that represent “an unacceptable risk of use in or diversion to a ‘military end use'” in China and other countries. . While it will stop listing Comac, it continues to hinder US trade with more than 100 Chinese and Russian companies and entities.

“The list has its pros and cons, but it creates a high-priority issue for the Biden administration, which must quickly decide whether to trigger a crisis in US-China aviation relations or go back to normal. says Richard Aboulafia. , vice president of analytics at Teal Group, wrote in: an opinion piece for Foreign policy. “

“Currently, China’s aviation industry only works if foreign companies sell it the equipment needed to get the planes off the ground,” explains Aboulafia. “Right now, when it comes to domestic manufacturers, it presents Potemkin jets, a homegrown facade that hides an imported core.”

Will President Biden continue to deliver on his campaign promise to be “tough on China”? The fact that the five-year ceasefire in the long-running US-EU trade war over aircraft subsidies was agreed during Biden’s visit to Brussels in June seems to indicate this, meaning the war of words between the US and China will continue as the two superpowers compete for position in the commercial aviation market.

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