March 2, 2018, © Leeham Co.: President Trump this week announced tariffs of 25% and 10% on steel and aluminum imports, sparking a sharp stock sell-off and provoking fears of a trade war.
But the aerospace analyst for JP Morgan today said it should be very little.
“Because aluminum and (to a lesser degree) steel are inputs for building aircraft, President Trump’s announcement yesterday that he plans to impose tariffs on imports of both metals – of 10% and 25%, respectively – is a negative for US aerospace manufacturers,” JP Morgan wrote. “The impact should be small, however, as…aluminum prices increased by more than 30% last year (significantly more than the proposed tariff), with little to no discernible effect on Boeing and most major suppliers.”
The analyst, Seth Seifman, noted that customers “ultimately” absorb price increases.
“If we assume that aluminum accounts for 70% of the weight of a 777 or 737 (it is far lower on a 787) and that materials account for 30% of the price of an aircraft, then a 10% increase in aluminum is a less than 2% increase in the price of more metal-intensive aircraft,” Seifman wrote. “Steel is such a small component of aircraft that the tariff impact should be negligible. Boeing will have to consider these higher costs in pricing future aircraft deals, but lots of cost and price variables move around all the time, and so a low-single-digit change does not seem like a showstopper.”