Aerospace and defense industries need aluminum, steel and trade

President Trump has committed to bolstering economic security, improving the domestic business environment, and supercharging job growth in the United States. Unfortunately, the Commerce Department’s proposed tariffs or quotas to reinvigorate U.S. aluminum and steel production will harm the U.S. aerospace and defense industry and its 2.4 million employees.

American’s aerospace and defense companies support efforts that enhance American economic security and maintain a strong U.S. manufacturing and defense industrial base, including the ability to domestically source critical metals such as aluminum and steel.

{mosads}However, according to a recent Department of Defense memo related to the proposed tariffs, the U.S. military requirements for steel and aluminum each represent only 3 percent of U.S. production. Since national security is not affected by our current acquisition of steel and aluminum, the administration should consider the broader economic impact of tariffs or quotas and take care not to inflict unintended consequences on users of these raw materials.

Approximately 97 percent of jobs in the U.S. aluminum industry reside in post-primary production, value-added industries like aerospace and defense. We machine high-grade aluminum for aircraft skins, structures and fuel tanks. Steel is used in components and structures like landing gear where strength or part life is most important.

This industry contributes to America’s economic and national security in part by leveraging access to a global supply chain to produce the best products at the best price for our customers in a highly competitive international market. We need global sources of aluminum and steel to remain competitive, and demand for these products is increasing. Quotas risk reducing our access to these basic materials. Tariffs do not address all the necessary market conditions, such as energy costs, for new U.S. aluminum production to remain viable.

Aerospace and defense exports generated an $86 billion trade surplus in 2017, which was the largest surplus of any manufacturing sector, and supported high-skill, high-wage American jobs that pay 93 percent higher than the national average. Our industry ranks as the nation’s third largest gross exporter, producing 9 percent of all U.S. exports in goods. More than half of the value of our 2017 exports came from companies in the supply chain, including the smallest mom-and-pop shops, large first-tier suppliers and everything in between.

In addition, the U.S. civil aviation and defense supply chain is intertwined, with many small and medium sized companies serving both commercial and military contracts. These commercial contracts are often higher volume and higher profit margin, and help underwrite innovation and business activity on the military side. When costs and disruptions can be tied to the aluminum and steel used for parts and components, both commercial and military, there is a cascading impact throughout the production process in both sectors.

Before issuing tariffs or quotas on aluminum and steel, Trump should consider the impacts of increased costs, decreased supply and disruption to the supply chain on a successful industry that is a key contributor to the U.S. economy. Our country’s history of imposing tariffs on raw materials like steel is not a good one. A study funded by the Consuming Industries Trade Action Coalition Foundation in 2003 found that raised prices resulting from the most recent tariffs imposed on imported steel in 2002 cost more jobs in the broader economy than existed in the steel industry at the time.

Another potential risk is that tariffs or quotas on foreign aluminum and steel will lead to trade retaliation on U.S. products that are global market leaders. The European Union is already examining Kentucky bourbon and Wisconsin cheese for possible trade retaliation.

Direct and indirect impacts from trade retaliation could be quite substantial. If countries turn away from U.S. aerospace and defense systems, we lose the benefits from both the initial sale and the ongoing sale of parts and components critical for maintenance, repair, and overhaul of these systems. In addition, tariffs generally have a depressing effect on global trade, lessening the demand for new aircraft to transport goods and people.

We support Trump’s stated goal of enforcing our trade laws and improving the U.S. manufacturing base, but this issue is complex and the Commerce Department’s proposed solutions create significant unintended consequences. As Trump considers the proper course of action, his administration must avoid inflicting harm on high performing sectors like the aerospace and defense industry.

Remy Nathan is the vice president for International Affairs at the Aerospace Industries Association, where he leads policy development and advocacy efforts on all trade-related issues affecting international commercial and military aerospace markets for America’s premier aerospace and defense association.