Tariffs Threaten Aerospace and Defense Industry
President Donald Trump’s recent tariffs are set to raise the cost of aerospace products, including Boeing and Airbus planes, GE Aerospace engines, and other defense-related goods. This move poses a serious threat to an industry that helps reduce the U.S. trade deficit by more than $100 billion annually. Dak Hardwick, vice president of international affairs at the Aerospace Industries Association, noted, “It certainly makes things more expensive for the industry,” referring to the impact of these tariffs on major players in the aerospace sector.
Industry Calls for Duty-Free Trade Provisions
The Aerospace Industries Association, representing companies like Boeing and GE Aerospace, has urged the Trump administration to uphold provisions of a nearly 50-year-old trade agreement that allows for duty-free trade of civilian aircraft and defense-related imports. Hardwick mentioned that the association has been working with the White House on this issue, though he acknowledged that the line of requests is long, with little immediate response.
Trump’s Executive Order on Tariffs and National Security
In his executive order announcing the new tariffs, Trump stated that global trade and economic policies have exacerbated the decline of U.S. manufacturing. The order emphasized the need for a robust domestic manufacturing ecosystem to maintain a strong defense and national security. Trump’s focus on reducing reliance on imports for key manufacturing inputs was framed as a critical step to preserving U.S. security and economic strength.
Impact on Aerospace Exports
The aerospace industry has been a significant U.S. export sector, with Boeing alone receiving over two-thirds of its airplane orders from customers outside the U.S. According to Boeing CEO Kelly Ortberg, “Free trade is very important to us,” highlighting the company’s reliance on global markets to drive job creation and business growth. Ortberg stressed the importance of keeping access to international markets open, cautioning against policies that could close doors to key trading partners.
New Tariffs on Aircraft and Key Materials
Under the new tariffs, the aerospace industry faces additional duties on essential materials like steel and aluminum, which are crucial in airplane manufacturing. The tariffs apply not only to complete aircraft but also to key components and materials imported from around the world. Hardwick explained that these tariffs will likely lead to increased prices, which could be absorbed by airplane or engine makers, the supply chain, or passed on to consumers. The price increases could be particularly impactful as airplane prices are negotiated in advance, with delays in production often resulting in shifting material costs.
Aerospace Industry Struggles with Supply Chain Pressures
Alongside tariff challenges, the aerospace sector faces ongoing supply chain issues exacerbated by the COVID-19 pandemic. With some parts in short supply, manufacturers have struggled to keep up with the booming demand for air travel. Even with production moving to U.S. factories like Boeing’s in South Carolina and Airbus’s in Alabama, the industry remains dependent on global supply chains. Imported parts, including wings and fuselages, are still subject to tariffs, regardless of where the final assembly takes place.
Global Supply Chain Implications for Airbus and GE
The global nature of the aerospace supply chain means that tariffs on imported components can drive up costs across the industry. For example, General Electric and France’s Safran, which jointly produce the CFM engines used in both Boeing and Airbus jets, face potential price hikes for thousands of imported parts. Aboulafia, managing director at AeroDynamic Advisory, pointed out that there’s no such thing as a purely domestic jet, with parts sourced from around the world. These supply chain complexities mean that the tariffs will have a far-reaching impact on the industry.
Rising Costs and Potential Disruptions for U.S. Aerospace
Trump’s sweeping tariffs on aerospace and defense products threaten to disrupt a vital sector of the U.S. economy. As manufacturers like Boeing and GE Aerospace face rising costs, the industry is calling for relief through the continuation of duty-free trade agreements and policy adjustments. The tariffs, coupled with ongoing supply chain disruptions, could strain the aerospace industry, leading to higher prices, reduced competitiveness, and potential job losses. The outcome of these trade policies will be crucial in determining the future stability of the U.S. aerospace sector.
