The United States State Department last week approved an agreement to sell Taiwan $ 620 million in parts and services to recertify its Patriot Advanced Capability-3 missile arsenal. Lockheed Martin (NYSE: LMT)The United States ‘largest defense contractor was named prime contractor in the deal, and the United States’ Defense Security Cooperation Agency (the arm of the Pentagon responsible for coordinating foreign arms sales) immediately notified Congress.
China is not happy and says it is venting with Lockheed Martin.
A Patriot missile battery. Image source: Getty Images.
China intends to impose “unspecified sanctions” against the defense contractor, Bloomberg reported this morning. The news agency quoted the Chinese Foreign Ministry as saying “China strongly opposes the sale of arms by the United States to Taiwan,” an island nation that the People’s Republic of China considers an integral part of its own territory. In response to the US move, the Foreign Ministry promised “to impose sanctions on the main contractor for this arms sale, Lockheed Martin.”
However, it is not entirely clear that Chinese sanctions could have much effect on Lockheed Martin. American law already limits the amount of business Lockheed can do with China. The company’s Sikorsky subsidiary sells some helicopters to Chinese companies from time to time, but for the most part, Lockheed’s high-tech defense products can no longer be sold in China. Therefore, a Chinese vote not to buy these items appears to be an empty threat.
A potential sanction that could take more bite would be if China prohibits the sale of components or raw materials used to produce Lockheed’s weapons. It remains to be seen whether China will follow this route.
