The plan by President Donald Trump to add tariffs to imported aluminum and steel would barely move the price of a jetliner made by Boeing or even a fighter jet, defying the fears some have of a large blow to industry in the U.S., say aerospace analysts.
However, what could create more of an impact is the retaliation that countries like China may implement. China is one of the biggest customers of Boeing and could slap on their own tariffs if the U.S. is to go through with its threats to tax steel that is imported at the rate of 25% and aluminum at 10%.
As one of the largest manufacturers in the world, Boeing gives a window of how tariffs of double-digits for raw materials would end up translating into only a fractional increase in the cost of the finished goods they are used to make.
Boeing makes each of its planes in the U.S., but close to 70% of the last year’s deliveries of 773 jetliners went to clients outside the U.S. and 22% just to China.
Aluminum represents as much as 80% of the weight for older model aircraft like the 737 and the 777 but just 12% of its cost, said several industry experts that have direct knowledge of the airplane maker. The remainder is labor, overhead as well as other expenses.
A tariff of 10% for aluminum imports would increase the plane’s cost by only 0.2% if all the aluminum was imported. However, Boeing uses mostly domestic produced aluminum say experts.
Experts estimate that just 25% to 30% of aluminum used is imported for planes leaving an impact of only 0.3% of the cost of a plane.
Domestic aluminum prices are likely to increase if tariffs are placed on imports, although it is not clear how much that increase would be.
For a 737, mid-size aircraft, with a price of $117.1 million, a cost increase would amount to $200,000 or slightly less, because airlines often give discounts of their list price by as much as 40% and the profit margin for Boeing is approximately 10%.
The net effect when involving steel is quite similar. Although it represent much less of a typical plane made by Boeing.
Experts estimate that the 25% tariff Trump is to impose on the price of steel would cost aerospace companies in the U.S. less than $100 million or roughly equal to the impact that aluminum would have.
This means together the tariffs would add between $150 million and $250 million to the cost, or at the most only 0.2% of the more than $100 billion worth of jets and military aircraft made each year by U.S. companies.