Tariff Turbulence: Navigating the U.S. Aerospace Sector’s Trade Storm

The U.S. aerospace and airline industries are caught in a maelstrom of tariffs, retaliatory measures, and supply chain disruptions, with the stakes high for investors. As trade tensions escalate, companies are scrambling to secure exemptions, mitigate costs, and avoid a collision course with global competitors. Here’s how the tariff war is reshaping the sector—and what it means for investors.

The Coalition’s Plea: Avoid “Unintended Consequences”

In March 2025, a coalition of 15 aviation groups—including Airlines for America and the National Business Aviation Association—pleaded with the U.S. government to exempt aerospace products from new tariffs. Their letter warned that 25% duties on imported aircraft and parts would disrupt a decades-old tariff-free environment, adding tens of millions to the cost of planes like the Boeing 787. CEO Aengus Kelly of AerCap estimated tariffs could hike the price of a single 787 by $40 million, forcing buyers to “pick sides” between Boeing and Airbus to avoid duties. This fragmentation of the global market could destabilize the entire sector.

USMCA: A Temporary Shield, Not a Cure

The U.S.-Mexico-Canada Agreement (USMCA) provided limited relief. Canadian-made aircraft like Bombardier’s Global 7500 were exempt from tariffs, but sub-assemblies and components faced uncertainty due to complex compliance rules. Meanwhile, the U.S. suspended tariffs on Canadian and Mexican products until July 2025—a reprieve that masks deeper vulnerabilities.

Boeing’s stock has already felt the tremors, declining nearly 20% since January 2023 amid delivery delays and trade tensions. Investors must weigh whether the company can navigate rising material costs and supply chain bottlenecks.

The Aluminum Albatross

Aerospace manufacturers are particularly sensitive to tariffs on aluminum and steel. Domestic producers rely heavily on Canadian imports, and the 25% duty on raw aluminum has pushed costs higher. For firms like Arconic, which supplies fuselage materials, this means a squeeze on margins. Even minor tariff-driven inflation could force cost-cutting or price hikes that deter buyers.

China’s Retaliation: A Double-Edged Sword

Beijing’s suspension of Boeing deliveries to Chinese airlines—130 undelivered planes including 737 MAXs and 777Xs—has dealt a blow to Boeing’s backlog. Meanwhile, China’s export controls on rare earth minerals (dysprosium, gadolinium) threaten U.S. defense contractors like Lockheed Martin (LMT), which relies on these elements for F-35 engines and submarine components.

Lockheed’s free cash flow dropped to $1.2 billion in 2024 from $2.8 billion in 2022, reflecting pressures from rising material costs and delayed contracts. Investors should monitor its ability to secure exemptions or diversify supply chains.

The New Tariff Landscape Post-April 2025

Recent developments add layers of complexity:
- China’s 125% tariffs: Effective April 9, these duties on all Chinese goods—paired with the elimination of the de minimis exemption—threaten just-in-time supply chains for small components like sensors or wiring.
- Semiconductor investigations: Section 232 probes into semiconductor imports could disrupt avionics systems, while critical minerals investigations target battery tech for electric aircraft.
- Maritime logistics: Proposed tariffs on cargo equipment (e.g., ship-to-shore cranes) risk slowing global component transport, with cargo volumes already down 60% since April 2025.

Investment Implications: Winners and Losers

• Winners: Companies with diversified supply chains or strong USMCA compliance (e.g., Bombardier’s Canadian operations) may thrive. Airlines like Delta (DAL) and JetBlue (JBLU), which source Airbus A220s from Canada, could see lower costs—if they can secure parts.
• Losers: Firms reliant on Chinese rare earths or European steel may face margin erosion. Boeing’s reliance on global suppliers leaves it exposed to tariff volatility.

Delta’s revenue fell by $1.5 billion in Q1 2025 compared to 2023, prompting it to withdraw 2025 financial guidance. Investors should prioritize airlines with flexible fleet strategies and hedged fuel costs.

Conclusion: Bracing for Turbulence

The aerospace sector is at a crossroads. While USMCA exemptions and electronics exclusions offer temporary relief, the broader threat of tariffs and supply chain fragility remains. Key data points underscore the risks:
- $40 million added cost per Boeing 787 due to tariffs.
- 60% decline in global cargo volumes, threatening just-in-time manufacturing.
- $1.2 billion drop in Lockheed Martin’s free cash flow, signaling strain on defense supply chains.

Investors should favor firms with diversified suppliers, hedged input costs, or direct access to USMCA exemptions. Companies like Raytheon Technologies (RTX) or Spirit AeroSystems (SPR) with vertical integration might outperform. Meanwhile, airlines like Alaska Airlines (ALK), less dependent on imported parts, could weather the storm better than rivals.

The tariff war isn’t just about duties—it’s a test of resilience. Those who adapt fastest will fly higher.