What Tariffs Could Mean for the Price of Airplanes

What Tariffs Could Mean for the Price of Airplanes

A possible trade war between the United States and China is putting the word “tariff” on everybody’s lips. The US government’s proposed tariffs would, perhaps significantly, increase the prices of imported aluminum and steel. Moreover, retaliatory measures from trading partners like the European Union and China could prove costly for companies, workers, and consumers.

Airplane enthusiasts know that aluminum and steel are critical components of most jets, so it’s only natural to wonder how these changes would affect airplane prices. We can learn more through the high-profile example of The Boeing Company and what tariffs might do to their jets. According to industry analysts and trade experts, it may not be rough in some regards, but could be in others.

 

American Tariffs: Slight Changes in Aluminum and Steel Costs

rising steel prices affect the cost of aircraft

Reuters wrote in April that for a large company like Boeing, a rise in aluminum and steel prices would barely raise the cost of building a plane. Boeing mostly uses American-produced aluminum, and the tariffs would only affect imported material. For their older models, it’s 12 percent of the total cost and an overwhelming four-fifths of the aircraft’s weight. Newer models even use less aluminum, so it’s about 10 percent of the cost.

Despite its comparatively higher price and much higher tariff, Boeing’s use of steel would be similarly affected, which is to say hardly affected. Aerospace manufacturing expert Kevin Michaels calculated that altogether, US tariffs on imported steel and aluminum would cost Boeing, and other American-based airplane manufacturing companies, between $150 million and $200 million per year. That’s an almost insignificant fraction of the $100 billion these corporations make annually.

 

Chinese Tariffs: Threats Without Backing

However, the real trouble for the company might come not from American tariffs, but the reaction from another country to them. China receives about a quarter of Boeing’s planes. The company depends on an amicable relationship between that nation and the US. However, early in April, China announced possible massive tariffs on American products – including airplanes.

As with the rise in aluminum and steel prices, this might not be as strenuous for Boeing as it looks. For starters, the tariff would not be for airplanes in general, but specifically “commercial airplanes with an ‘empty weight’ of between 15000 and 45000 kilograms.” That size range is less than most of Boeing’s models.

spending money on purchasing a plane

Industry analyst Dhierin Bechai expects that Chinese tariffs would only change the prices of 17 older versions of the Boeing 737. China currently has orders placed for 165 aircraft. Even though that means more than 10 percent of the airplanes ordered will be affected by tariffs, the impact is not as broad as it seems at first glance.

Besides, Chinese airlines are only ordering so many planes from Boeing because consumers in the country want them. They will continue to want planes as that demand increases, if Boeing’s predictions from last year hold true. The company stated that it expected to sell more than 7,000 planes to Chinese companies over the next two decades.

Forbes speculated that the Chinese government chose these weight specifications for the airplane tariff not to hurt Boeing, but rather to send the U.S. government a message. It just might be that even if the threats of tariffs and trade wars escalate, China will leave airplanes alone. This, combined with the low impact Boeing gets from US tariffs, means the aircraft manufacturer caught in the middle will remain secure – even if they have to spend a little more.

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