“As we learned after President Herbert Hoover signed the Smoot-Hawley tariff at the outset of the Great Depression, vibrant international trade is a key component to economic recovery; hindering trade is a recipe for disaster.” ~ Asa Hutchinson
What are Tariffs?
In the current context of global trade, it is appropriate to begin this discussion with a quote from President Donal Trump who said “You see these empty, old, beautiful steel mills and factories that are empty and falling down. We’re going to bring the companies back. We’re going to lower taxes for companies that are going to make their products in the USA. And we’re going to protect those companies with strong tariffs”.
The aviation industry is by no means “empty and falling down”. However, it would not be incorrect to say that the aviation industry, and in particular the manufacturing of aircraft and parts, would see some adverse effects to the supply chain if tariffs were imposed on the overall aviation sector.
There is a popular misconception among many that tariffs are imposed on countries and some often misconstrue tariffs as levies borne by foreign entities. They are in reality financial burdens that ultimately fall upon domestic consumers and industries. In the context of aerospace manufacturing, such measures impose additional costs on critical components sourced from international suppliers, thereby exacerbating the already fragile state of global supply chains. Manufacturers, dependent on an intricate network of suppliers spanning multiple jurisdictions, face heightened production expenses that inevitably translate to elevated aircraft prices. This increased cost burden is then transferred to airlines, which, in turn, pass it on to passengers in the form of higher fares. Moreover, retaliatory tariffs from affected nations introduce further complexity, reducing the competitiveness of U.S.-manufactured aircraft in foreign markets. The compounding effect of these trade barriers is a contraction in demand, diminished profitability for manufacturers, and an erosion of the industry’s capacity to innovate and sustain long-term growth.
The Plight of the Aviation Industry
I have paraphrased the following discussion based on an instructive and analytical opinion published in Aviation Week of February 07, 2025 by Jens Flottau titled Aerospace Would Be Exposed In Potential Trade War. I have also and added my own views.
The opinion piece observes that the global commercial aircraft manufacturing industry and the airline sector have, in recent years, endured one of the most formidable operational and financial upheavals in history. The pandemic, having gradually receded, left in its wake a landscape of profound economic distress. Airlines, encumbered with staggering debt obligations amounting to billions of dollars, are engaged in an arduous struggle to restore their fleets. This endeavor is being thwarted by persistent and unprecedented delays in the delivery of both new aircraft and essential spare parts. Meanwhile, manufacturers, having suffered significant disruptions, continue to face impediments in reviving production capacity, with their output still trailing behind levels achieved six years ago.
Throughout this period of turbulence, two recurring themes have underscored the industry’s predicament: a supply chain in disarray and inflationary pressures that, despite recent moderation, remain at historically elevated levels. The repercussions have been dire, with several suppliers—both large and small—teetering on the brink of collapse. Nowhere is this more pronounced than in the aerostructures sector, which finds itself particularly vulnerable to these destabilizing forces.
It further goes on to say that any residual optimism that the industry might be on the brink of recovery in the near term is, at best, misplaced. The specter of supply chain disruptions and inflation is likely to persist for at least the next four years. Moreover, the policy direction of the new U.S. administration under President Donald Trump has introduced additional volatility. Initial tariff measures against Mexico, Canada, and China have already been announced, with indications that the European Union may soon be targeted. China, in response, has swiftly imposed countermeasures, while tariffs on Mexican and Canadian imports have been temporarily suspended for a month.
The Effects of Trade Wars
The article in Aviation Week opines that while the ultimate trajectory of these trade disputes remains uncertain, there is little doubt that a protracted global trade war could have profound consequences for aviation. The severity of the impact will depend on the precise nature and extent of the measures yet to be introduced. What is unequivocally clear, however, is that a broader trade conflict would inflict significant harm on an industry already grappling with systemic challenges.
The positioning of major aerospace entities in this evolving landscape varies. Boeing, which manufactures its aircraft exclusively in the United States, relies on a global network of component suppliers. Similarly, GE Aerospace and Pratt & Whitney source key engine parts from around the world. Airbus, for its part, operates assembly lines across France, Germany, China, Canada, and the United States, with its supply chain extending across multiple continents. U.S. aerospace firms have, over the years, relocated substantial portions of their production to Mexico, while Canadian-manufactured components are integral to the Airbus A220s assembled in Mobile, Alabama. China, in turn, imports American-made engines to power its Comac C919, and critical aircraft components are sourced from India and Brazil, among other nations.
Sustained tariff impositions, or more severe measures such as export restrictions, pose an imminent threat to an already fragile supply chain—one that, despite immense pressures, had shown tentative signs of stabilizing. The underlying assumption that corporations would respond by onshoring production is fraught with impracticality. The logistical and financial complexities of relocating aerospace manufacturing back to domestic facilities involve multiyear, capital-intensive initiatives. Further complicating the matter is the likelihood that a future U.S. administration could reverse current trade policies, thereby rendering such efforts futile. Moreover, the very factors that drove the initial offshoring—primarily cost efficiencies—continue to persist and, in some instances, have intensified.
As already mentioned, a common misconception surrounding tariffs is that they are borne by the countries upon which they are levied. In reality, the financial burden would fall on airlines and, ultimately, their passengers. Higher operating costs would inevitably be passed down in the form of increased fares, exacerbating inflationary pressures. The cost implications extend to aircraft procurement as well. The article points out that tariffs on aerospace goods would render Boeing aircraft more expensive, whether a 737-8 bound for Delta Air Lines from Renton, Washington, or a 787 destined for United Airlines in Chicago from North Charleston, South Carolina. The competitiveness of these aircraft would further erode if purchased by foreign carriers whose governments have enacted retaliatory tariffs against U.S. trade policies.
Furthermore, data from Vertical Research Partners underscores the global nature of commercial aircraft deliveries. Approximately 65% of Boeing’s aircraft are supplied to non-U.S. operators, and a similar proportion of Airbus jets are delivered to non-European airlines. The interconnectedness of the industry, therefore, amplifies the potential fallout from an escalating trade war.
The article concludes that in the immediate aftermath of the pandemic, the aviation sector experienced a resurgence driven by pent-up demand for travel. More recently, sustained economic strength in key markets, including the United States, has bolstered consumer spending on air travel. However, uncertainty—anathema to both corporate decision-making and consumer confidence—now looms large. The prospect of an imminent trade war, with its attendant risks to investment and employment, has introduced yet another destabilizing variable into an already precarious equation.
My Take
In addition to the above, I see many dimensions to this discussion.
The use of tariffs in a trade war as a means of economic coercion is fundamentally antithetical to the principles of global aviation governance. In an era of interconnected global economies, the imposition of tariffs as an instrument of trade warfare has far-reaching consequences, particularly in the highly complex and integrated field of aircraft manufacturing. The ramifications extend not only to the production of aircraft and components but also to the aviation industry at large, encompassing the economic accessibility of air travel. The World Trade Organization (WTO), the International Civil Aviation Organization (ICAO), the International Air Transport Association (IATA), and the United Nations World Tourism Organization (UNWTO) collectively emphasize the deleterious effects of protectionist policies on international commerce, aviation safety, and the fundamental principles of equality of opportunity enshrined in the Chicago Convention.
The WTO, established to foster free and fair trade, explicitly discourages the use of tariffs that disrupt global supply chains. Under the General Agreement on Tariffs and Trade (GATT), Article XI prohibits quantitative restrictions on imports and exports, while Article I mandates the Most-Favored-Nation (MFN) principle, ensuring non-discriminatory trade practices. In the context of aircraft manufacturing, these provisions are crucial, as the industry relies on a seamless supply chain that spans multiple jurisdictions. Tariffs imposed on aluminum, titanium, avionics, and other critical components result in increased production costs, which are invariably transferred to airlines and, ultimately, to consumers.
The Chicago Convention of 1944, which established ICAO, is founded on the principle that international civil aviation should be developed in a manner that fosters equality of opportunity. The preamble of the Convention underscores the importance of ensuring that the benefits of aviation are universally accessible, unimpeded by artificial barriers such as protectionist tariffs. The imposition of trade restrictions on aircraft components not only disrupts production but also exacerbates economic disparities between developed and developing nations. When the cost of aircraft increases due to tariffs, airlines in emerging markets—many of which rely on affordable leasing agreements—struggle to procure new-generation fuel-efficient aircraft, further widening the gap in aviation access and competitiveness.
IATA, representing global airlines, has consistently opposed tariff-based trade conflicts due to their cascading impact on air travel costs. The imposition of tariffs on essential components leadsto increased aircraft prices, forcing airlines to either absorb the costs or pass them on to passengers. This results in higher airfares, reduced route viability, and a decline in overall passenger demand. IATA’s stance is rooted in the recognition that air travel is a critical enabler of global connectivity and economic development. Tariffs that artificially inflate costs contravene the principles of market access and competitive neutrality, undermining the sustainability of the aviation sector.
The UNWTO, dedicated to the promotion of responsible and sustainable tourism, highlights the adverse implications of protectionist trade policies on the travel and tourism sector. Given that air transport serves as the primary mode of travel for international tourists, any disruption in the aviation supply chain—caused by tariffs—translates to economic losses in tourism-dependent economies. Increased operational costs for airlines reduce the availability of affordable travel options, deterring potential tourists and thereby impeding the economic benefits derived from global tourism.
The use of tariffs in a trade war as a means of economic coercion contravenes the WTO’s commitment to free trade, ICAO’s foundational principle of equality of opportunity, IATA’s advocacy for cost-effective air transport, and UNWTO’s vision for sustainable global tourism. A protectionist approach to aircraft manufacturing and components results in a cascading series of adverse effects—ranging from increased costs of production and higher airfares to diminished accessibility of air travel. Such policies not only hinder economic growth but also erode the core tenets of international aviation cooperation. As the aviation industry seeks to recover from external shocks, it is imperative that nations adhere to the principles of open trade and regulatory harmony to ensure the continued viability and inclusivity of global air transport.
