LMT - China sanctions Lockheed Martin Raytheon over arms sales to Taiwan

China had warned of retaliation over the downing of a balloon earlier this month, but the latest salvo in tension-filled U.S.-Sino relations is coming over arms sales to Taiwan. Beijing is imposing sanctions on Lockheed Martin ( NYSE: LMT ) and a subsidiary of Raytheon Technologies ( NYSE: RTX ) by adding them to a so-called "unreliable entity list" that aims to punish firms that jeopardize its national security. It comes on top a fines that are based on the contract value of their arms sales to Taiwan, which the Chinese Communist Party considers as part of its sovereign territory.

What it means: Lockheed ( LMT ) and Raytheon ( RTX ) will be barred from importing goods into China, or making new investments in the country, but the measures are likely to be symbolic given that both companies have little direct exposure to the nation. However, it could impact their civilian businesses in aerospace and other markets, as well as cancel and prohibit work permits for corporate managers, which would ban them from entering into the country. The bigger part of the equation will be if the U.S. and China are moving farther apart, or maybe even too far, to resolve their differences.

A gauge for that could be a meeting this weekend between Secretary of State Antony Blinken and his counterpart Wang Yi on the sidelines of the Munich Security Conference. Blinken already canceled a planned trip to Beijing earlier this month following the controversy surrounding the Chinese spy balloon shootdown. Friction between the world's two largest economies also lingers over areas like trade , but bigger economic risks are at stake with a battle over access to key cutting-edge technologies like the escalating semiconductor war .

Go deeper: The Pentagon is now reviewing its arms stockpiles after seeing how fast ammunition has been drained during the war in Ukraine. General Mark Milley, chair of the Joint Chiefs of Staff, said the analysis could result in an increase in the U.S. military's $817B annual budget - especially as concerns grow over the security environment should another war breakout in the Taiwan Strait - but SA contributor Zoltan Ban doesn't see that as a reality due to to excessive government debt . Earlier this week, NATO Secretary General Jens Stoltenberg further announced that "Ukraine is consuming an enormous amount of munitions and depleting allied stockpiles." This is "many times higher than our current rate of production," he cautioned, and "puts our defense industries under strain."

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