I sure hope you're following along as directed!
My reasoning was very simple and based on first-hand experience.
Unlike the United States and Europe, where politicians will bicker endlessly about the political merits of trade tariffs, free trade, and economic policy, China will go right for the jugular by targeting our most valuable companies.
Starting, most likely, with Boeing.
The company already sells one in every four aircrafts it produces to Chinese buyers, recently announced a $37 billion order for another 300 planes from China Aviation Supplies Holding Company, and expects China to acquire more than $1 trillion in aircraft over the next 20 years.
Roughly "7,000 are in China" according to Boeing CEO Dennis Muilenburg, who made the observation on CNBC's "Squawk" on the Street last month.
Simply put, Boeing is China's single most important target:
- More than 80% of the company's commercial planes are sold overseas, which means that foreign customers are its bread and butter – every one of which can easily shift to competitors like Airbus Group (OTC: EADSY) or cancel orders entirely… or both.
- The company employs more than 137,000 people, which is nearly as many as the total number of people working in the steel and aluminum industries the president wants desperately to protect. Factor in suppliers around the country, and you may be talking a quarter million or more folks at risk. That's the kind of number that could almost single-handedly result in a "jobs" recession if it goes the other way.
- Boeing is opening a plant in Shanghai later this year for high-value finishing because China does not yet have the expertise to do that domestically. So, those jobs are on the line, too, as are valuable direct labor savings and bottom-line profits.
- Chinese orders may account for upwards of a fifth of Boeing's $488 billion backlog.
- Boeing stock rose more than 90% in 2017, making it one of the single best-performing Dow components – a trend it was continuing this year.
Until last Wednesday.
That's when it finally dawned on traders that the trade war concerns that you and I have been talking about for months might be for real and, worse, that there would be a devastating economic impact that goes waaaaay beyond the narrowly defined industrial ballgame the president wants to play.
Boeing stock dropped $8.41 per share and the company got an involuntary $4.89 billion buzzcut in market capitalization.
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The irony, of course, is that Trump's proposed steel and aluminum tariffs themselves really don't amount to much in the scheme of things for Boeing itself. Aluminum, for example, only makes up about 12% of the cost of an aircraft like the 737 or 777, according to Reuters, most of which is domestically produced anyway.
It's what happens when China strikes back that really gets expensive in a hurry. Unbeknownst to most people, the real money building an aircraft gets spent on electronics, avionics, and engines.
Moving an order from Boeing to Airbus is just one facet of the potential repercussions.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.