The U.S. has been the global leader with regards to the aerospace industry for a long time. Top revenue generating players in the aerospace industry such as Boeing, Lockheed Martin, General Dynamics, GE Aviation, United Technologies, and more are all U.S.-based companies. Unlike the U.S., China does not have a strong domestic aerospace sector and heavily relies on aircraft from international sources such as Boeing and Airbus. China being the largest importer of U.S.-made aircraft is a crucial market for the aerospace sector. It is also the largest market for Boeing, reportedly accounting for almost 20% of Boeing’s revenue in 2017. China imported approximately $16 billion in commercial aircraft from the U.S. in 2017. China is one of the fastest growing markets for the aerospace industry and is expected to create the largest market demand for passenger fleets by 2036 followed by the U.S. and India.

The trade war between China and the U.S. started on March 22, 2018 when President Trump signed the memorandum for counteracting China’s alleged unfair trade practices, especially related to intellectual property theft. The patent thefts by China have cost the U.S. government $225 billion to $600 billion annually. The tariff actions taken by the U.S. have led the Chinese government to impose stricter intellectual property infringement laws to address IP theft so as to nurture a better business environment and negotiate a truce for the trade war.

Aerospace, Company Market Share, Revenue, 2016, $ Billion

Global Export, Aircraft, Spacecraft and Parts thereof, 2017, $ Billion

The aviation sector heavily relies on strong patent regulations as it is a high-tech industry and is extremely competitive. China filed a record 3.4 million patents in 2016, out of which over a million were granted. The Chinese protocol is such that foreign companies are required to form joint ventures with domestic companies. This leads to a weak barrier between their eventual competitors and their intellectual property. For long, companies have been using reverse engineering of products containing patented parts as a loophole for gleaning technical information of these patents. China reportedly lags behind in education and research personnel, which points to a weak R&D sector, contrary to what the patent filing activity indicates. This increases the doubt of illicit activities on the part of Chinese companies and has led to several violations of intellectual property rights (IPR) in the U.S.

Since then, the Trump administration has placed tariffs on Chinese imports worth approximately $250 billion and China has reciprocated by placing tariffs on imports from the U.S. worth around $110 billion.

Imported Chinese goods mentioned in the tariffs include steel and aluminum, solar panels, electronics, and aircraft parts such as internal combustion aircraft engines, turbojets, wiring and rubber, optical instruments, and various other intermediary products employed in the Aerospace Industry. Apart from the specific tariffs placed on imported Chinese goods, the tariff on steel and aluminum is applicable on all imported quantities. Argentina and Australia are the only countries that have been spared from these tariffs.

Imported American goods placed under the tariff include small aircrafts, aircrafts seats, refurbished aircraft tires, new tires, ignition magnetos, engine distributors, coils, and starting devices.

Boosting American Aluminum Production

Global Export, Aluminum, 2017, $ Billion

China is globally the largest producer and exporter of aluminum. Its largest export market is the U.S. which amounted to $3.5 billion in 2017. Aluminum is an important raw material used in the construction of aircraft; it is preferred due to its cheap cost, strength, ease of processing, and lightweight property. Despite a number of new materials such as CFRP and titanium being incorporated into the design and construction of new aircraft, aluminum continues to be a vital part of the aerospace industry.

The import tariff on all aluminum products is expected to increase prices in the aerospace sector, which so heavily relies on the import of aluminum products due to the weakened domestic production capacity. In contrary though, the increase in prices of Alumina are not expected to hit the production capabilities negatively at all as a 10% increase in aluminum rates translates to a 1.2% increase in price of the airplane, only if all of the aluminum used is imported. This increase is not expected to majorly affect the production capacities of global leaders in the aerospace industry, such as Boeing, which was unaffected by a 30% increase in alumina prices in 2017. Most of its aluminum needs are catered to by the domestic market with only about 20–30% being imported. Thus,  the net impact of the aluminum tariffs translates to only about 0.3% increase in price, which is negligible as all prices decided during a deal account for price fluctuations as well.

The trade tariff placed on aluminum and steel have also spurred the domestic U.S. aluminum manufacturers back into action. Alcoa has reportedly restarted its aluminum smelters in the U.S. after the announcement of the tariffs placed on aluminum imports by the Trump administration. This points to a revival of the U.S. aluminum industry as domestic sources regain market hold, providing alternatives to local businesses stricken with the tariffs placed on imported aluminum.

Reduction in Demand for Air Transport

The trade tariffs are expected to affect the demand for air travel and air freights. Air travel is a growing market due to improving economic conditions globally, better amenities, competitive pricing, and time efficiency. The increase in cost of raw materials (imported alumina), aircraft parts and sub-assemblies, electronics equipment for aircrafts, and other miscellaneous articles is in the end transferred on to the consumer. There may not be an immediate reduction in the number of air passengers, but eventually, the increasing cost will reduce the number of passengers choosing air travel.

With increase in import prices due to the direct effect of the tariffs on various products in both countries, there will be a decrease in overseas demand. Many businesses are sure to face strong headwinds as their customers start looking for alternative and cheaper sources to import the same products. This will negatively impact the income of households and revenues of businesses. There will be a lesser demand for air travel for business purposes as well as the amount of air cargo shipments. Thus, the tariffs that affect export businesses also negatively affect the air cargo traffic and air travel demand for personal and professional purposes.

The current air cargo market is expected to rise as exporters and importers hasten the transfer of goods and products before the increase in tariff rates comes into effect. The fear of escalation in the trade war leading to all import products coming under the tariff as well as the tariff on import of car parts increasing from 10% to 25% is driving up the demand for air freight as suppliers try to cover their business needs as early as possible.

Fall Before Its Rise: Chinese Aerospace Sector

Global Import Market Share of US Export, Aircraft, Spacecraft, and Parts thereof, 2017, $ Billion

The Chinese commercial aerospace sector will also be impacted negatively as its nascent C-919 commercial aircraft will be hit by the tariff even before its launch. The domestically manufactured commercial aircraft by the state-owned aerospace manufacturer, Commercial Aircraft Corporation of China (COMAC), which made its maiden flight on May 5, 2018, took over 7 years and $9.5 million to be developed and over 9 years to gain regulatory approval within China itself. It was expected to be the beginning of the Chinese commercial aerospace sector and a potential sale product to the U.S.

This seems rather unlikely though, due to the gap in technological capabilities of the market between the two nations. While the C-919, which heavily relies on foreign parts and assemblies, uses older engines, the U.S. and EU aircraft engine manufacturers are moving on to higher-bypass ratio engines, hybrid-electric architectures, and adaptive-cycle military jet engines. Many other features of the C-919 also lag technological advancement compared to the present key players in the aerospace industry.

The Trump Administration’s targeting of Chinese aircrafts with a 25% tariff seems to be an added barrier to the already lagging Chinese Aerospace sector. The Chinese aerospace sector has a long way to go before entering the commercial aerospace sector and the trade war does not help this process.

Shifting the Value Chain Away from China

The global aviation industry is dependent on a global value chain with healthy competition and fair and balanced trade practices. The imposition of the trade tariffs threatens to disrupt this system as the tariffs become a disadvantage for manufacturers and suppliers in the U.S. and Chinese markets. Major effects of the trade war are expected to be seen in the value chain operations of various companies as they struggle to cope with the increasing tariff for products and reducing demand for the exported goods.

The U.S. and China have been strategic trade partners for a long time and have become heavily dependent on each other for a variety of products. The aerospace manufacturing value chain is increasingly segregated on the basis of the supplier, starting with the raw material supplier and ending with aircraft assembly and its sale. There exists many intermediate suppliers who provide important parts, equipment, and sub-assemblies for aircraft to the final manufacturers.

Major suppliers of aerospace parts and equipment, including important telecommunication equipment and so on, are from China. The sudden disruption that is caused by the trade war tariff on these businesses could effectively shift the value chain for many products as Chinese aircraft parts suppliers shift their bases out of China. Businesses could also shift out of the hands of Chinese suppliers as manufacturers wrestle to contain the cost increase in manufacturing and exporting.  Southeast Asian countries such as Thailand and Vietnam offer ample investment opportunities for this increasing demand to shift the supply chain. This process will be slow though, due to the enormous market size of China and the relationships and networks already established within China.

China’s Xiamen Airlines reportedly has approached Airbus, Boeing’s European rival, for the details on a long-range, narrow body jet. Airbus winning this Chinese contract will deal a crushing blow to the Boeing Company as it would lose out on exclusive Chinese customers, though this seems rather unlikely due to Airbus’ own backlog in delivery of aircraft to other customers. However, nothing can be said until further confirmation.

American Crude-price Effect

Another key effect of the trade war is on the oil prices in the U.S., as China, a major market for U.S.-imported crude oil and the largest oil consumer globally, slapped a 25% tariff on all U.S.-imported crudes. This resulted in moving the supply away from the U.S. as Chinese consumers shifted to the OPEC owing to higher demand. The decrease in crude oil demand from China could result in a surplus of oil capacities within the U.S. and potentially decrease the crude oil prices, thus offsetting the increased manufacturing cost for the aerospace sector with lower fuel prices. This scenario is only likely if the OPEC countries decide to increase the supply of crude oil to address the shift in Chinese demand from the U.S.

Fear of an Escalating Trade War

The fear that exists within the aerospace market has more to do with the escalation of the trade war between the governments than the present tariffs that have been put into force. The present tariff does not impose a heavy duty on the aerospace industry between the two nations. Firstly, Boeing, the global leader in aircraft manufacture, which holds a relative duopoly in the aerospace market with Airbus, depends primarily on domestically manufactured alumina and not on imported alumina. Secondly, though tariff has also been placed on parts, instruments, and sub-assemblies for aircraft imported from China, the new ‘Completion and Delivery Center’ built in Zhoushan, East China, by Boeing,  which started production in December, 2018 is sure to reduce the import cost as assembly of parts can take place at the assembly center built in China itself. This plant is expected to deliver 100 planes a year at its full capacity, thus making China Boeing’s biggest market.

The escalation of the trade war instils fear amongst many regarding the future of these projects for both the nations. In this scenario, Boeing can always shift its sales focus to other growing countries within Asia such as India, Japan, and so on, so as to retain profits from the cancelled orders. This could also lead to lower aircraft costs as Boeing would need to sell the excess aircraft that are built.

If China were to aggressively target the U.S. Aerospace Market, a major blood line for the U.S. economy, it could lead to various order cancellations, loss of business to the European counterpart Airbus, tremendous tariff hikes, huge losses of working capitals, and even large scale lay-offs to protect the company’s integrity. After China’s announcement of retaliatory tariffs, the Boeing Company saw an initial fall in their share prices by about 5.7% but recovered quickly. Further escalations in the trade war between the two nations could have permanent effects on the valuation of the company. Loss of orders to its rival Airbus could also negatively impact the valuation of the company and plunge it lower.

A strong demand, especially from China and the rest of the APAC Region, for air travel as a more suitable and time-efficient alternative, favorable economic conditions, and relatively low prices due to healthy competition within the passenger and cargo fleet market are the growth drivers for the aerospace industry. These are also expected to be the major factors in deciding the growth of the global aerospace industry. Hence, a major setback is not expected for the global Aerospace Industry though the scenario in the U.S. and China could remain volatile.


On the whole, the trade war between the U.S. and China, has not yet had a detrimental impact on the aerospace industry, but in the long run there could be many potential negative effects.

Future shift in the supply chain can effectively shift cargo fleet demand to other manufacturing countries. Reduction in U.S oil consumption by China can positively affect the fuel prices, thus offsetting the increase in aircraft manufacturing costs. Increasing tariffs on key raw materials such as aluminum and important parts for aircrafts will effectively push the prices onto the consumer, adversely affecting several businesses and passenger fleets. Loss of supply contracts from U.S. aircraft manufacturers will affect the U.S. Aerospace industry as revenue decreases.

The Chinese economy will witness a slow shift out of manufacturing facilities, which will be damaging especially with regard to demand for aerospace parts, and the Chinese aerospace sector will have more hurdles to cross before it enters the market. China will also witness an increase in the cost of Boeing aircraft. The Chinese government has agreed to reduce and remove the 40% tariff on the U.S. car imports and to purchase agricultural products of the U.S. These developments point towards an improvement in the current trade war scenario. Hopefully, the truce period during which both governments will participate in discussions to strike a trade deal will yield fruitful results.

Escalation in the trade war will negatively impact not only the aerospace industry, but also other sectors and industries that rely on air travel and air cargo for the success of their businesses. The aerospace industry itself heavily relies on a global supply chain for various different parts, sub-assemblies, and raw materials; and hence, prefers unrestricted trade access. In the long run, there will be no winners from the increasingly protectionist trade policies as domestic businesses bear the brunt of the trade war.

Your Comment: