October is turning out to be a month of tariffs and trade war developments. On Wednesday, the World Trade Organization (or WTO) gave the go-ahead for the US to levy tariffs on $7.5 billion worth of EU goods. This decision stemmed from a 15-year-old dispute between Boeing (BA) and Europe’s Airbus (EASDY).
In 2004, the United States brought the EU to the WTO, claiming that Airbus, Boeing’s European rival, had received $22 billion in illegal state aid. Airbus is a consortium funded by Britain, Germany, France, and Spain. The EU has vowed to retaliate, and a counterclaim against Boeing is pending at the WTO.
On October 15, the US’s additional 5% tariffs on $250 billion worth of Chinese goods are slated to come into effect. And, the worst is yet to come. In December, the US will start levying 15% tariffs on Chinese goods still untouched by the trade war. China is scheduled to retaliate with tariffs on American cars and other goods.
The trade war with China and now with the EU is impacting you more than you might think. Let’s see how.
How could the trade war affect your diet?
If you enjoy a glass of single malt or French wine, the trade war against the EU is set to make them more expensive. The Trump administration is levying 25% tariffs on these items.
The list also includes some Italian cheeses, including parmesan, reggiano, and romano. There may not be domestic alternatives available for these products.
How could the tariff war impact your travel plans?
Right after the WTO decision, the Trump administration levied a 10% tariff on Airbus products made in European facilities. Boeing is already struggling with the 737 MAX 8 crisis and delays in its 777X production.
On top of that, Boeing hasn’t given any confirmation on its New Midmarket Airplane (or NMA) program, dubbed the 797. The Boeing 797 is expected to be a replacement for its aging 757 and 767s. If Boeing doesn’t go ahead with the 797 program, the Airbus A321XLR would be the only efficient midrange aircraft available on the market.
American Airlines (AAL) has already ordered 50 A321XLRs. JetBlue (JBLU) has also opted for A321XLRs to focus on flights to Europe. JetBlue is a loyal Airbus customer and doesn’t have any Boeing aircraft in its fleet.
With tariffs, plans for these airlines could be disrupted. Because they can’t cancel these orders and switch to Boeing overnight, we expect them to spend more money on the Airbus planes due to these tariffs. Who will they pass the costs on to? All of us.
American Airlines shares fell 5.34% on Wednesday. AAL stock fell 0.39% yesterday, and it was down 0.46% at 9:47 AM EDT today. JetBlue lost over 3% in the previous two trading sessions, but its stock was up 0.75% at 9:47 AM EDT today.
Delta Air Lines (DAL) doesn’t have any 737 MAX 8s in its fleet and has mostly escaped the Boeing crisis. However, yesterday’s news was too much for Delta stock. DAL stock lost 4.67% on Wednesday, and it fell 2.8% yesterday. However, DAL stock was up 0.34% at 9:48 AM EDT today.
Although Delta is waiting for the Boeing 797, it could go with the A321XLR if Boeing doesn’t build the 797. Tariffs on Airbus planes would certainly make life more difficult for Delta.
Ultimately, passengers will have to bear the brunt of the trade war in terms of higher fares. Plus, you may have to spend more on cameras, as German camera parts are also covered under these tariffs.
How could the trade war affect your pocket?
I’m not just talking about money, although the trade war is almost certainly going to increase a variety of expenses. I’m talking about the Apple (AAPL) iPhone in your pocket. On December 15, made-in-China cellphones will come under the purview of these tariffs.
Because Apple produces most of its products in China through contractors like Foxconn, these tariffs would directly affect Apple’s profits. These tariffs could also prompt Apple to raise iPhone prices, ultimately affecting your wallet.
Apple and other companies are already looking into moving production out of China. Apple has already started selling locally made iPhones in India. Google, which rivals Apple’s iOS with its Android operating system, is moving the production of its flagship Pixel smartphones from China to Vietnam.
Samsung ended its mobile phone manufacturing operations in China. After losing a zero in its valuation in Wednesday’s crash, Apple stock was trading up 1.5% today at 9:50 AM EDT.
Savers, brace for impact!
The trade war has impacted economic indicators, which could force the Fed to be more accommodative in its policy meeting at the end of this month. Consumer confidence has fallen, as has the ISM manufacturing PMI.
The unofficial ADP-Moody’s job numbers also painted a gloomy picture, and inflation has remained below the Fed’s target of 2%.
If the Fed cuts interest rates deeply, savers could be at a disadvantage. Low rates mean lower bond yields and low interest rates on savings deposits.
Another side effect of the low interest rates could be a weaker dollar. That would make your international trips and imported food items even more expensive.