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Why Boeing Shares Are Falling on the News of Chinese Tariffs

Boeing shares fell Wednesday morning on the announcement from China’s Ministry of Commerce that retaliatory tariffs will target U.S. aerospace, auto, and chemical industries.

The aerospace giant’s stocks fell as much as 6% in premarket trading after the latest development in the trade war between the U.S. and China.

After President Trump announced a 25% tariff on steel and a 15% tariff on aluminum in early March, Beijing levied tariffs of up to 25% on 128 American products, including many food items, like pork and bourbon, that are mostly produced in parts of the country that voted for Trump in the 2016 presidential election.

The U.S. responded Tuesday with duties on high-tech goods from China. Now, the Chinese will add a 25% tariff on 106 items that target products the country imports from the U.S. most often.

The list includes soybeans, automobiles, chemicals, and aircraft — some of the largest trade categories between the two nations.

The U.S. exported $15 billion of aircraft to China in 2016, and about the same amount of agricultural products like soybeans targeted by these tariffs, according to U.S. trade data. The most recent round of tariffs from the two countries affect $50 billion of each other’s imports.

The Dow Futures were down 365 points when the market opened, in a drop driven by all 30 components of the Dow Jones Industrial Average.

The company’s (BA) shares were down nearly 3% as of 11 a.m. EST, but the ultimate scope of the impact on the aerospace giant depends on some key definitions in the new tariffs from China.

These tariffs will affect older, narrowbody Boeing jets, but due to a lack of specificity in the announcement Wednesday, it is not yet clear if the company’s 737 MAX family will be affected.

China’s Ministry of Commerce issued the tariffs against aircraft with an “empty weight” of between 15,000 kilograms and 45,000 kilograms (15 to 45 tonnes), according to Reuters. But the documents announcing these measures did not define the term.

It’s possible that they could apply to Boeing’s new big-selling 737 MAX 8 jet and not its larger MAX 9 and MAX 10 models.

The Gulfstream 650, produced by General Dynamics, also falls within the “empty weight” range targeted.

Many of the unfilled orders to China for 737s are for the MAX models which are replacing the older, narrower aircraft that will definitely be subject to the new tariffs.

China Southern Airlines, Ruili Airlines, and Okay Airways each have two 737-800s ordered and Xiamen Airlines has four, according to the Boeing order book.