The U.S. State Department last week approved a deal to sell Taiwan $620 million worth of replacement parts and services to recertify its armory of Patriot Advanced Capability-3 missiles. Lockheed Martin (NYSE: LMT), America's largest defense contractor, was named the prime contractor on the deal, and the U.S. Defense Security Cooperation Agency (the Pentagon arm responsible for coordinating foreign arms sales) promptly notified Congress.
China is not pleased, and says it's taking out its displeasure on 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 firmly opposes U.S. arms sales to Taiwan," an island nation that the People's Republic of China considers integral to its own territory. In response to the U.S. move, the foreign ministry promised to "impose sanctions on the main contractor of this arms sale, Lockheed Martin."
It is not entirely clear that Chinese sanctions can have much effect on Lockheed Martin, however. U.S. law already limits the amount of business that Lockheed can do with China. The company's Sikorsky subsidiary sells a few helicopters to Chinese companies from time to time, but for the most part, Lockheed's high-tech defense products are already banned from sale to China. Thus, a Chinese vow to not purchase these items appears to be a bit of an empty threat.
One potential sanction that might have more bite would be if China bans the sale of components or raw materials used to produce Lockheed's weapons. Whether China will go this route remains to be seen.
10 stocks we like better than Lockheed Martin
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Lockheed Martin wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of June 2, 2020
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.