U.S. Markets closed

StockBeat: Trump's Airbus Threats Put a Damper on Europe Markets

By Geoffrey Smith

Investing.com -- The people at Airbus probably knew it was too good to last.

The company’s shares were down 2.0% after early trading in Tuesday in response to news that the U.S. administration is preparing tariffs on $11 billion worth of EU imports as a reaction to what it sees as unfair subsidies to Europe’s aerospace champion.

The threat of a new trade conflict flaring up has held back the broader market, but not stopped it eking out further gains. At 04:15 AM ET (0815 GMT), the benchmark Euro Stoxx 600 was up 0.1% at 387.82. Germany’s Dax was down 0.2%, while the French CAC 40 was up 0.1% at a new seven-month high.

Airbus has hit a series of all-time highs this year, capitalizing on the company’s position as a duopolist in wide-bodied aircraft, one of the most surefire global growth sectors of the next 20 years.

In a duopoly, what is bad for one is almost inevitably good for the other. The human disasters with Boeing’s 737 Max have tilted demand back to its only major competitor, something that will over time further fatten Airbus’ order book and allow it to charge higher prices. (The same process worked in reverse for a time after the AF447 crash involving an Airbus A330 in 2009.)

Things got worse for Boeing (NYSE:BA) recently when China used the 737 Max issue to prove a point to the U.S. about its commercial power, placing a huge order for Airbus and dropping the 737 Max from a shopping list of U.S.-made goods that are part of ongoing trade talks with Washington.

Boeing shares fell over 4.4% Monday after the company said it would cut production of the model by nearly one-fifth.

So the supportive barrage from the Trump administration clearly comes at a good time for Boeing. Europeans will suspect that its timing is not a coincidence.

Whether it will lead anywhere is another matter. The two sides have been suing one another at the World Trade Organization over various alleged subsidies for 14 years. Neither side can afford to see their champion go down, and it isn’t clear that a significant shift in market power between the two would benefit the world’s aircraft buyers. Most of all, Europe would be sure to react with tariffs of its own, raising the economic risks for President Trump as he seeks re-election next year.

Related Articles

3 Things Under the Radar This Week

FDA pulls up Walmart, Kroger, others for selling tobacco to minors

FAA meets with U.S. airlines, pilot unions on Boeing 737 MAX