This article is published in Aviation Week & Space Technology and is free to read until Apr 11, 2025. If you want to read more articles from this publication, please click the link to subscribe.
The Trump administration has shocked and unsettled the aerospace industry with its plans for five significant tariffs. Two target aluminum and steel, while three target the U.S.’ largest trading partners: Canada, Mexico and China. On March 7, the administration announced a temporary pause on most Canadian and Mexican tariffs that had begun three days before, while the aluminum, steel and China tariffs will move forward. What are the potential costs of these taxes, and who will pay?
Aluminum is the most popular material in aerospace. Most aerospace alloy in the U.S. comes from domestic mills, but most of the pure aluminum purchased by mills comes from foreign smelters—particularly in Quebec. Aluminum tariffs will cost a minimum of $500 million and possibly much more if downstream products are included. Aircraft OEMs, aerostructures suppliers and fragile subtier suppliers will be the main bill-payers. U.S. mills might have to eat part of the increase.
The story is much the same in steel. Aerospace’s second most popular material is used all over aircraft, and the cost to the supply chain will be lower—an estimated $50 million—since most is domestically produced. It is not clear which derivative aerospace products (e.g., forgings, castings and extrusions) will be included.
This takes us to the three country-oriented tariffs. The least impactful is China, for which tariffs were increased to 20% from 10%. Its factories export just over $2 billion worth of aerospace products to the U.S., amounting to about $200 million in new taxes, mostly on metallic parts and aerostructures. Many of these factories are owned by U.S. and European OEMs, which will drive up their costs. But the larger risk is retaliation against Boeing in jetliners.
About $8 billion worth of aerospace products are imported from hundreds of factories in Mexico owned by U.S. OEMs and suppliers that make labor-intensive intermediate goods there to remain competitive. The baseline cost of the Mexican taxes is $2 billion, assuming parts cross the border once. The true cost will be markedly higher because many parts cross the border several times; for example, a steel gear machined in Mexico might travel to California for heat treatment then back to Mexico for integration into a gearbox before heading to a U.S. customer. In this scenario, the gear could be taxed twice.
Finally, there is Canada, whose aerospace exports to the U.S. total roughly $10 billion. Most of these are finished goods, and about half are Bombardier business jets purchased by U.S. customers. Other notable exports include Pratt & Whitney Canada engines and auxiliary power units and CAE simulators, aerostructures and landing gear, including components used on U.S. military aircraft, such as the Lockheed Martin F-35. Not factored in this potential $2.5 billion tax is the impact on maintenance, repair and overhaul. The risk of retaliation is very high. How long will it be before Canada imposes a tariff on U.S. business jets to level the playing field or cancels the more than $20 billion in orders for the F-35 and Boeing P-8?
In aggregate, the five tariffs would add up to $5.3 billion in taxes, most of which would be borne by OEMs and suppliers, as their capacity to pass on costs to customers is low. On top of this are the indirect costs of complying with tariffs. Meanwhile, many capital allocation and strategic decisions are frozen until some certainty is gained.
The Trump administration appears to have a thin understanding of how complex B2B supply chains function. Its recommendation to move aerospace operations to the U.S. would take years, given the high certification requirements, and it is unclear where the labor would be found. The U.S. needs Mexican labor and Canadian expertise to maintain its competitive edge in aerospace and defense, where it has the second-largest trade surplus—a staggering $114 billion—of any industry. The implications of the tariff whipsaw are too long to list, but the biggest could be the wasteful activity needed for tariff compliance throughout the supply chain.
It is time for our leaders and industry associations—some of which are primarily focused on currying favor with the new administration—to elevate their advocacy against these dangerous policies before it is too late.
Related Content
