The Accumulating Costs Of Tariffs On The Aerospace And Defense Industry

Forbes

29-05-2025

EVERETT, WA - Boeing employees work on a Boeing 787 Dreamliner on one of the assembly lines February ... More 14, 2011 at the company's factory in Everett, Washington. (Photo by)
The whipsaw pronouncements from the White House imposing and then delaying tariffs have sent equity and bond markets on a roller coaster ride.
Although presumptions of negotiating advantageous trade deals buoys markets temporarily, the actual effect has been to raise costs through many industries, including aerospace and defense.
On March 12 of this year, the Administration imposed 25% tariffs on imports of aluminum and steel from all countries, including Canada, under Section 232 of the Trade Expansion Act of 1962. Whereas a steel tariff of 25% had been in effect since 2018, the announcement raised the tariff on aluminum, which has extensive use in aerospace, from 10%. The move also removed many specific exemptions and included downstream derivative products.
Section 232 was imposed under the rationale that imports of steel and aluminum threatened national security by economically undermining domestic producers. Indeed, the US has only two domestic companies (Alcoa, Century Aluminum) with four smelters. The majority of aluminum for aerospace comes from Canada with ten smelters located in Quebec and British Columbia.
Although the tariffs may eventually stimulate production from the US suppliers, the production lag means costs will increase in the interim, and prices will likely rise to near the level of the import alternative.
WASHINGTON, DC - APRIL 02: U.S. President Donald Trump holds up a chart while speaking during a ... More 'Make America Wealthy Again' trade announcement event in the Rose Garden at the White House on April 2, 2025 in Washington, DC. Touting the event as 'Liberation Day', Trump is expected to announce additional tariffs targeting goods imported to the U.S. (Photo by)
These product specific tariffs were followed by the 'Liberation Day' tariffs on April 2. Although these country tariffs were then delayed for ninety days and change day by day, the net effect is that an industry that operates a global supply chain must prepare to pay the tariff in real time or find ways to exempt or pass it along to the next buyer.
And then yesterday, the Court of International Trade declared the 'reciprocal tariffs' of Liberation Day to be illegal. The White House is appealing the ruling and is vowing to continue their fight. However, the aluminum tariffs are unaffected by this action and are still in place. In addition to actual added costs, uncertainty has the effect of delaying investment decisions and forward planning.
Ever since the election, I have written several articles in Forbes.com warning of the costs that would be imposed on the industry by these trade actions (Nov 27 -How Will Threatened Tariffs Impact the Aerospace and Defense Industry?, Feb 28 - Trump Tariff Impact on Aerospace Could Be Huge and Costly, Mar 30 - The Looming Impact of Aerospace Tariffs, Apr 5 - Can Tariffs Truly Stop Globalization?)
Recent findings have confirmed these predictions. Ernst and Young has estimated the costs of the tariffs as between $5 and $8 Billion on the overall commercial and defense industry. These costs are incurred first in the supply chain and may be passed along to the next purchasing level, depending upon the terms and conditions of the supply agreements.
It has behooved suppliers to carefully examine their agreements. Often, buried in the boilerplate are exemptions for tariffs, similar to material cost escalator provisions. Although this is a boon to the supplier, it means that the next higher level is now incurring the cost which potentially could daisy chain up to the OEM.
The gravity of this situation, not even counting the administrative bandwidth consumed to track, apply and exempt, has been underscored by a recent White Paper published by the Aerospace Industries Association (AIA), on May 1.
'American aerospace is the perfect example of a sector where America is dominant in large part because of balanced, reciprocal trade,' AIA Vice President of International Affairs Dak Hardwick said. 'The little-known Agreement on Trade in Civil Aircraft has unlocked enormous benefits for the American workers, the economy, and our ongoing safety and prosperity."
The US aerospace and defense industry generated almost a trillion dollars of sales in 2023, the last year for which AIA has published figures, supporting 2.2 million workers. Their wages are fifty percent above the national average wage.
Few American industries have the attractive attributes as aerospace. The Administration should tread carefully in imposing costs of as high as an additional 8% on a domain where the US enjoys global leadership over fierce competitors.