How a proposed border tax could divide Boeing and its suppliers
SEATTLE (Reuters) – A US tax overhaul proposed by Republican leaders in Congress would deepen divisions between big manufacturers like Boeing Co. and the thousands of smaller companies that supply them, according to suppliers and tax and trade experts.
US automakers and other manufacturers that rely on imported components also would be affected by the proposals, which would tax imports at a 20 percent rate, and could split these sectors into winners and losers.
The revamp would heighten existing tensions in the aerospace industry, where Boeing’s aggressive cost-cutting driven by fierce competition with European rival Airbus has pushed suppliers to lower prices and source more parts and materials abroad.
Aerospace components often zigzag through multiple countries and companies before reaching Boeing’s factories in Washington and South Carolina. USbased suppliers to Boeing would face a tax on their imports of these parts. Boeing, the top exporter among US manufacturers, would export its jetliners tax free. Boeing and some of its largest suppliers, such as United Technologies Corp, General Electric Co. and Honeywell International Inc, which also have substantial exports, favor the Republican tax package.
The plans, laid out in a blueprint last year and which President Donald Trump has spoken about favorably, aim to boost US manufacturing, and include cutting the corporate tax rate to 20 percent from 35 percent and making capital investments immediately deductible.
Lawmakers already are at work drafting a tax bill to introduce by early summer, but it could be delayed if health care changes take longer than expected, according to congressional staff.
If the proposed 20 percent tax on imported goods had been in effect last year, Norfil Complex Machining, a 40-employee company in Pacific, Washington, likely would have paid more for titanium it imports from Russia. The metal goes into parts Norfil makes for Boeing landing gear that get assembled in Japan.
“A lot of Russian titanium goes into planes,” said Doren Spinner, Norfil’s CEO. His purchase contracts have pricing that adjusts if costs go up, so the tax “would end up affecting what the plane would cost,” he says.
Other companies said it would be tough to pass higher costs on, and some might move production to low-cost locations abroad.
“If the taxes are ridiculous, we’d just have to think of something creative,” said Paul Doran, a sales manager at Mifa, a subsidiary of Netherlands-based Aalberts Industries NV that makes precision aluminum parts for aerospace, autos and other industries. “I think most companies would be in the same boat.”