China’s proposed aircraft tariffs take aim at Boeing Co.’s main source of profit, the 737 jetliner family, while exempting a popular upgraded model needed to fuel the rapid growth of the country’s airlines.

Boeing’s best-selling plane, the 737 Max 8, would narrowly escape the retaliatory measure, based on the weight limits outlined by the Chinese government, Douglas Harned, an analyst at Sanford C. Bernstein & Co., said Wednesday. The biggest risk is for an older generation of 737 jetliners and General Dynamics Corp.’s luxurious Gulfstream jets.

The threat goes beyond particular aircraft models. Even if commercial aircraft deliveries continue largely as planned to China, there’s still the risk that the escalating tit-for-tat between the world’s two largest economies would spiral into global recession. The measure was a “shot across the bow” for Boeing and the U.S. government, said Seth Seifman, aerospace analyst at JPMorgan Chase & Co.

“We understand some big picture concern,” Seifman said in a report, “but it appears to us that the specific proposals from China this morning are calibrated carefully to avoid a major impact on Boeing and are therefore intended more as a message to the U.S. administration that additional trade barriers will be met with an escalating response.”

While the trade volleys are still proposals that haven’t yet taken effect, the threat alarmed investors. Boeing fell 2.7 percent at 11:30 a.m. in New York, the biggest decline on the Dow Jones Industrial Average. European rival Airbus SE dipped less than 1 percent to 92.97 euros in Paris. General Dynamics slid 1.1 percent to $218.97.

Tariff Impact

The proposed aircraft tariffs would apply to imported U.S. aircraft weighing between 15,000 and 45,000 kilograms. That would mainly hit the so-called NG generation of 737 planes, which are being replaced by the Max. Only 24 of the Chinese-ordered planes remain in Boeing’s backlog, Harned said. The smallest 737 Max, a slow seller, would also be affected. China’s Ruili Airlines is among the potential buyers.

The popular Max 8 model, a workhorse for discount carriers, weighs 70 kilograms more than the upper limit set by the Chinese government, according to a Boeing document. The Max 9 and 10 would also be unaffected.

For Gulfstream, all but its lightest plane in production, the G280, would fall within the proposed weight limits, according to data from an annual report by Business & Commercial Aviation that’s widely used in the industry. The heaviest aircraft built by Textron Inc.’s Cessna unit — the Longitude — weighs less than 15,000 kilograms, the company said.

Boeing didn’t immediately comment. Airbus and General Dynamics declined to comment.

‘Punishing Itself’

China couldn’t easily scrap its Boeing orders without hurting its three biggest airlines, which are government-controlled, Harned said. In the near term, it would be difficult for the carriers to smoothly shift orders for narrow-bodies, favored for shorter domestic routes, to Airbus. The European planemaker’s single-aircraft, the A320neo family, is effectively sold out through 2022.

“This is a bad sector for China to apply tariffs,” Harned said, adding that the Chinese government would be “punishing itself.”

But the Chinese government does have a history of withholding business to send a message. Officials are withholding certification of Airbus’s A350 wide-body jet and of A320neo powered by a General Electric Co.-Safran SA engine “because Europe is moving too slowly” in certifying the Chinese-built C919 jetliner for commercial flying, Harned said.

©2018 Bloomberg L.P.

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Photo Credit: Based on weight requirements, the Boeing 737 Max 8 is exempt from China's trade tariffs against U.S. products. Pictured is this aircraft in Air China's fleet. Boeing