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US Mulls More Tariffs on EU Goods : Aerospace Stocks in Trouble?

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U.S. Trade Representative recently made an announcement regarding the possibility of additional tariffs worth $3.1 billion on imports from Spain, France, Germany and the U.K. The list of 30products, on which tariffs are likely to be imposed, includes certain helicopters and aircraft.

Last October, the United States levied $7.5-billion tariffs on aircraft and other goods from the European Union. No doubt, if implemented, the latest tariff will shake stock markets, with the Aerospace stocks facing the brunt.

Let’s delve deeper and see how the enforcement of this potential tariff will impact some of the U.S. Aerospace-Defense giants.

The Boeing Company (BA - Free Report) , the largest plane maker in the United States, deploys a wide variety of products across its commercial aviation, space and defense programs developed by French software company Dassault Systemes SA (DASTY - Free Report) . Boeing also deploys a variety of products on its commercial airplanes manufactured by France-based Safran S.A. (SAFRY - Free Report) , ranging from LEAP-1B engines, wheels and carbon brakes, electrical wires, passenger seats, in-flight entertainment systems along with others products.

Meanwhile, Boeing relies substantially on deploying turbofan aircraft engines, also known as the Trent engines, for its 777 and 787 Dreamliner aircraft. These high-bypass turbofans are produced by Rolls-Royce (RYCEY - Free Report) , a British multinational engineering company.

Interesting, in October 2019, Lockheed Martin (LMT - Free Report) inked a multi-year collaboration with Dassault Systemes to deploy the latter’s 3DEXPERIENCE platform for strengthening its digital engineering initiatives and improve efficiencies of next-generation airplanes and helicopters. Lockheed Martin also procures key aircraft electrical applications from Safran that is deployed in the F-16 and F-22 military aircrafts.

The above discussion reflects the heavy dependence of U.S. Aerospace-Defense stocks on imports, particularly from European nations. Furthermore, per a CNBC report, the Office of the United States Trade Representative is considering the imposition of duties of up to 100% going ahead. If imposed, the already-struggling U.S. aerospace and defense companies, thanks toCOVID-19, will get exposed to more potential losses as increased import duty will shoot up product prices, thereby hampering profitability.

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