GE Aerospace’s Tariff-Free Push: A Lifeline for Aviation’s Trade Surplus?

GE Aerospace CEO Larry Culp is waging a high-stakes campaign to reinstate a tariff-free regime for the global aviation industry—a policy he argues is critical to preserving a $75 billion U.S. trade surplus and preventing supply chain chaos. But with tariffs now costing the sector over $1.3 billion annually, investors must weigh whether Culp’s advocacy can deliver stability or if the industry’s golden era of duty-free trade is behind it.

The Tariff Problem: A 45-Year Framework in Crisis

The 1979 Civil Aircraft Agreement (CAA), which eliminated tariffs on civil aircraft, engines, and parts, was once a pillar of global aviation trade. But in 2025, new U.S. tariffs—imposed on imports from Canada, Mexico, and China—have upended this system. While the CAA technically remains in force, its provisions are now overridden by levies as high as 25%, creating a “$1.35 billion headache” for GE and Raytheon Technologies (RTX) alone.

Culp’s argument is simple: tariffs disrupt a supply chain that spans 30 countries and relies on just-in-time manufacturing. For instance, GE’s Leap 1A engine, a joint venture with France’s Safran, uses turbine blades made in Pittsburgh by Howmet Aerospace. New tariffs threaten to raise costs, delay deliveries, and erode profit margins.

The Financial Toll: GE’s Cost Controls vs. Market Resilience

Despite the tariff headwinds, GE has maintained its 2025 earnings outlook of $5.10–$5.45 per share, buoyed by cost-cutting and a $6.3–$6.8 billion free cash flow target. However, RTX’s $850 million tariff hit highlights the sector’s vulnerability. The broader industry faces $1.35 billion in combined costs this year—equivalent to 1.8% of the $75 billion trade surplus Culp aims to protect.

Investors should note that GE’s stock surged 12% in early 2025, partly on confidence in its mitigation strategies, including:
- Expanding use of foreign trade zones to avoid tariffs.
- Leveraging duty drawback programs for imported components.
- Imposing a 1–2% tariff surcharge on engines to pass costs to customers.

Supply Chain Risks: Delays and Disruptions Loom

The stakes extend beyond balance sheets. Airbus has warned that CFM International (GE’s joint venture with Safran) is “significantly behind the curve” in engine deliveries, risking aircraft production timelines. Howmet Aerospace, a critical supplier, has even threatened to halt shipments if tariffs escalate—a move that could ground engines for Boeing’s 737 MAX or Airbus’s A320neo.

Meanwhile, airlines like United are preparing dual earnings scenarios for 2025, factoring in potential demand drops if tariffs spur recession fears. Culp acknowledges the uncertainty: “None of us know how this plays out.”

The Policy Crossroads: CAA Revival or Permanent Tariffs?

Culp’s advocacy hinges on reviving the CAA’s zero-tariff framework, which he argues has been “good for the country” by enabling the $75 billion surplus. But the Trump administration’s trade policies prioritize reciprocity over tradition, leaving the CAA’s future uncertain. While U.S.-Mexico-Canada Agreement (USMCA) exemptions temporarily shield North American trade until April 2025, they require complex rules-of-origin compliance, adding operational hurdles.

The broader question is whether the White House will view the aviation sector’s $135 billion in annual exports as too vital to sacrifice. Airlines, engine makers, and suppliers are united in lobbying for tariff relief, but political will remains unproven.

Conclusion: A Balancing Act for Investors

The math is clear: tariffs are a double-edged sword. While they may shield domestic industries in the short term, their long-term cost to a globalized aviation sector—where 70% of components cross borders—is existential. GE’s stock resilience (up 18% year-to-date as of mid-2025) suggests markets believe its mitigation strategies will hold. Yet, without a return to tariff-free trade, the industry’s $75 billion surplus faces erosion, and supply chains could fracture.

Investors should monitor two key metrics:
1. Policy developments: A renewal of the CAA or USMCA revisions to simplify origin rules.
2. GE’s cash flow: If its $6.3–$6.8 billion free cash flow target holds, it signals tariff mitigation success.

The aviation industry’s future hinges on whether Culp can persuade policymakers that 45 years of duty-free trade—and the jobs and exports it supports—are worth preserving. The answer will shape not just GE’s bottom line but the global economy’s skies.