Can Tariffs Truly Stop Globalization?
Pan Am - Pan American World Airways (msn19644 line number 13) Boeing 747-100 on final-approach. ... More (Photo by: aviation-images.com/Universal Images Group via Getty Images)
Few industries could be considered more global than commercial aerospace. The flagship of international travel and American ascendance was the humped profile of the Boeing 747.
Entering service at the beginning of 1970, it became an immediate success - not only because it could carry 374 passengers, and therefore cut the cost of travel per passenger by one third, but because it could fly further than any other aircraft in production at the time.
The Lockheed L-1011 and McDonnell Douglas DC-10 could travel up to 4,000 miles, but the 747 could go 50% farther - 6,000 miles, opening new routes and markets on a non-stop basis. Although building the aircraft almost bankrupted Boeing, the gamble paid off shifting the leadership of the industry to them. Lockheed eventually exited commercial aircraft production to concentrate on defense markets and a dwindling McDonnell Douglas merged with Boeing in 1997.
This story explains why the 'Liberation Day' tariffs announced on April 2 are such a shock to a global economic system that has relied on relatively open markets and free trade.
The 747 arrived as Nixon was visiting China and beginning the process which would open that country's markets to the world. The US was also exiting a long and costly war in southeast Asia and its baby boomers were leaving the protest lines and entering the workforce.
American actors Patrick Swayze (1952 - 2009) and Jennifer Grey star in the film 'Dirty Dancing', ... More 1987. (Photo by /Getty Images)
International travel was already emerging as an experience that was not just reserved for the wealthy. In the 1987 movie classic, 'Dirty Dancing,' a frustrated owner of a declining Catskills hotel declares 'Trips to Europe - that's what the kids want!'
And in future decades the continued democratization of air travel and trade liberalization of international air routes spurred consistent growth that made Boeing America's number one exporter.
The tariffs' attempt to shift manufacturing jobs to the US will take years, if they are ever successful. Previous articles ("How Will Threatened Tariffs Impact the Aerospace and Defense Industry?" Forbes.com November 27, 2024, 'Trump Tariff Impact Could Be Huge and Costly' Forbes.com March 13, 2025, "The Looming Impact of Aerospace Tariffs" Forbes.com March 30, 2025) have described the manifold reasons for why the aerospace supply chain, which is globally distributed, is difficult and risky to uproot and move.
Added to the chaos is the underlying rudimentary calculation of tariff levels that have produced wildly uneven and irrational effects on trading partners with no readily discernible policy value. Naturally, retaliatory tariffs are being imposed by other countries, such as China.
Unfortunately, the most immediate effect of the tariffs will be to impose a systemic tax across the value chain and to freeze all investment decisions in the face of monumental uncertainty.
As in many industries, contracts govern purchasing agreements. In aerospace, because of the long lead times, 'escalator' clauses are included protecting against inflation of raw materials and other items. However, few contracts identify tariffs as a cause for price adjustment, meaning that the producer will probably have to bear the cost of the import duty. The result will be either loss of profits or higher prices in the long run.
With a 10.5% drop in the stock market over the two days following the tariff announcement and continued statements from the President swearing support for the moves, it is understandable that the US business community is rattled. If this is posturing for a negotiating edge, it is coming at a very high price. It has little to nothing to do with importation of fentanyl, another of the White House purported goals of tariffs.
Rather, it appears to be an unshakable faith that tariffs are a boon to the importing country and that exporters have no alternatives. Both are wildly incorrect.
The current tariff regime, if not altered, will approach or exceed the Smoot-Hawley tariffs which helped lead to the Great Depression, due to the collapse of international trade.
Trade barriers are easy to erect, but much more difficult to reduce, since they require more than bilateral negotiations to right the system. The General Agreement on Tariffs and Trade was begun in 1948 and was ratified by 23 nations. It set the stage for the World Trade Organization and is credited with reducing average tariff levels from 22% to 5% among the member nations over 52 years.
This coincided with the era of globalization of trade which expanded the overall pie rather than attempting to steal share from other pieces. It is hard to believe any company, not just in the aerospace industry, would contemplate a new 'bet the company' product like the 747, in this environment.
With air travel booking rapidly ebbing and fears of a recession growing, a more likely outcome is pressure from the business community to rescind, or drastically lower, the tariffs. The damage will already have been done, but globalization does not stop due to one executive order from a President with a 1.5% popular vote mandate.
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Atlantic
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