Boeing and Caterpillar share prices fall by more than 5%

FEARS of a trans-Pacific trade war tore through the world’s markets with the stock prices for major exporters like Boeing and Caterpillar plunging more than 5%.

The impact was also felt in Malaysia as the benchmark FBM KLCI dipped nearly 12 points to 1,865 yesterday with two companies having links with the two American companies.

Sime Darby Bhd is among the world’s largest Caterpillar dealers.

Caterpillar Inc is a component stock in the Dow Jones Industrial Average and an American Fortune 100 corporation that designs, develops, engineers, manufactures, markets and sells machinery, engines, financial products and insurance to customers via a worldwide dealer network. It is the world’s largest construction equipment manufacturer.

The partnership between Sime Darby and Caterpillar, the world’s No.1 manufacturer of heavy equipment and power systems, goes back nearly 90 years since 1929.

Today, Sime Darby is the world’s third largest Caterpillar dealer with more than 110 branches in nine countries and three territories in Asia-Pacific.

It is also the sole distributor of Caterpillar equipment in seven provinces in China.

“We are keeping abreast of the developments and obviously have a keen interest in the matter. However, from what we have seen to date, we do not anticipate any major impact on operations,” said a spokesperson for Sime Darby.

Sime Darby is among the top-three biggest distributors of BMW cars and heavy industrial vehicles manufactured by Caterpillar.

Sime Darby’s dealerships with Caterpillar are via The Hastings Deering Group, headquartered in Brisbane, Australia, China Engineers Ltd, Tractors Singapore Ltd and Tractors Malaysia.

Tractors Malaysia is the exclusive Caterpillar dealership under Sime Darby Industrial Sdn Bhd and is a leading brand for marketing of premium heavy equipment in Malaysia and Brunei.

Sam Engineering & Equipment (M) Bhd is a key player in precision machining, equipment integration and automation solutions, primarily for the aerospace and equipment industries.

It has obtained long-term contracts to supply Airbus 320neo nacelle beams and prismatic parts for the Airbus 350, Boeing 787 and Bombardier C-series aircraft.

Boeing is an American company that designs, manufactures, and sells airplanes, rotorcraft, rockets, and satellites worldwide. It is among the largest global aircraft manufacturers and is the largest exporter in the United States by dollar value.

In late 2017, Sam said that it would soon commence commercial production of nacelle beams for the Airbus A320neo aircraft at its new RM100mil production facility in Bukit Minyak, Penang in early 2018.

The nacelle beams were to be used in the new Airbus A320neo aircraft. Besides this current project, SAM has secured projects for Boeing 787, Airbus A350XWB, Airbus320neo, and Boeing 737max.

Now, tariffs targeting one or two industries do not have sufficient scope to have such a negative effect.

The real damage is if more tariffs are imposed across large sectors of the economy. Now those can really have crippling economic effects.

The last time the world saw this was the Tariff Act of 1930 – or Smoot-Hawley – which sparked the last full-blown trade war.

The Act imposed nearly 900 tariffs across most sectors and had a dramatic impact on trade. US imports declined over 40% within two years, major trading partners retaliated and global trade fell 66% (from US$5.3bil in 1929 to US$1.8bil in 1933), likely exacerbating the Great Depression.

Smoot-Hawley had a cocktail of harmful consequences. It upset the operation of the international financial system. This is because free trade and free international capital flows go together.

Countries that borrow abroad must export in order to service their debts. Smoot-Hawley and foreign retaliation made exporting more difficult. Hence the result was widespread defaults on foreign debts, financial distress and the collapse of international capital flows.

The US Treasury Department has said that it would restrict Chinese investment in American technology firms – as this has been a habitual way that China uses to nurture its own “brains” in the high tech areas of artificial intelligence and autonomous vehicles.

The levies, which went into effect yesterday, would largely hit China.