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The aerospace sector could see itself as an unfortunate punching bag if the U.S. and China talk of tariffs continues to escalate.
More than 2.4 million workers are employed directly or indirectly in the aerospace and defense industry. Industry analysts say states like Washington, with more than 300,000 jobs in the sector, could have the most to lose if the current tariff debate escalates into a trade war.
Boeing, the world’s largest combined aerospace and defense manufacturer, is the most likely to be impacted by a trade war. But other manufacturers and suppliers also could be hurt by a trade war. For example, General Electric provides the engines, Spirit AeroSystems provides the bodies, Honeywell and Rockwell Collins provide major electronic subsystems and other components.
“Dozens of these companies will be affected by higher tariffs on Boeing jetliners,” Richard Aboulafia, vice president of analysis at Teal Group, told Bloomberg Law. Teal Group is an aerospace and defense consulting company providing market analysis and forecasting services.
“Everyone is very concerned because there’s a huge trade surplus between the U.S. and China. It’s the easiest place for China to hit back...It wouldn’t do employment any favor. It will hurt—it would,” Aboulafia said.
“These are well-educated and skilled workforces that rely heavily on access to global market and global supply chain,” Remy Nathan, vice president of international affairs at the Aerospace Industries Association, told Bloomberg Law. “Anything that disrupts the free flow of goods in the global trading system is going to create headwinds for the creation and sustainment of those jobs,” he said.
China now takes up about 25 percent of the world market for commercial jetliners, Aboulafia said. For aerospace and defense industries combined, it’s the top destination for U.S. exports, importing $16.4 billion in 2017, while only exporting about $1.2 billion back across the Pacific.
The U.S. proposed $50 billion in tariffs April 3, after imposing tariffs on steel and aluminum in March. China responded with the threat of tariffs on U.S. commodities and certain types of aircraft. President Donald Trump on April 5 said $100 billion more in goods from China could see tariffs. The proposed tariffs won’t take effect until after a public comment period that ends in May. The House Ways and Means Committee will hold a hearing on the issue on April 12.
Boeing didn’t respond to a request for comment. Honeywell is “watching the situation closely,” but has no comment at this time, a company spokesperson told Bloomberg Law.
Washington state is likely to be hit the hardest because of the volume of its aerospace and defense exports, sources told Bloomberg Law. Aerospace and defense companies in Washington exported about $46.8 billion worth of aerospace and defense goods in 2016, accounting for nearly a third of total A&D exports in the U.S., according to numbers provided by AIA. And a significant amount of the exports probably went to China, Aboulafia said. The next biggest states in terms of A&D exports in 2016 were California ($12.9 billion) and Kentucky ($11 billion).
Washington also has a large number of aerospace and defense workers. According to AIA, 313,090 Washingtonians worked in the aerospace and defense and related industries in 2017, ranked second among the states. It was surpassed by California with 354,010 workers and followed by Texas with 230,410.
Aboulafia said it’s impossible to quantify the job impact. “You don’t lose a quarter of the jobs if you lose a quarter of the trade. And the business is also growing worldwide,” he said.
Aerospace and defense workers made an average of $93,700 in 2016, while the U.S. national average wage was $48,642, according to AIA.
Aircraft jobs are very well-paid, so if someone in the aerospace sector losses their job and look for another job, “it’s unlikely they are going to get a job (that is) going to pay as well as the jobs they now have that will be lost in the tariff,” Gary Hufbauer told Bloomberg Law. Hufbauer was chair and director of studies at the Council on Foreign Relations and a professor of international finance diplomacy at Georgetown University.
Companies that supply parts to Boeing are also likely to take a hit by a trade war.
It’s often missed in the conversation on trade that the surplus the U.S. aerospace industry enjoys is very much fueled by parts and components, Nathan said. “About 56 percent of U.S. exports in aerospace and defense can be attributed to companies in the supply chain or the companies below the manufacturer that has a logo on the aircraft,” he said.
Tariffs imposed by the U.S. government on Chinese products also would impact U.S. companies and their workers. If a U.S. supplier buys something on the tariff list from a Chinese company, its costs go up and it either has to pass that price increase on to its customers or eat the difference, Dan Stohr, a spokesperson for the AIA, said in an email to Bloomberg Law.
Higher costs will impact the ability of companies to maintain their workforce and hire new employees, he said.
But the tariffs are just talk so far. If any tariffs take effect, workers won’t immediately feel the impact, many sources said.
“If China in the next three or four years clearly favors Airbus” over Boeing, “you are going to feel that,” Aboulafia said, but it’s very unlikely for China to cancel existing orders from Boeing because of its demand.
The tariff proposed by China so far would only impact a small portion of aircraft exported to China, Aboulafia said. “I think people are panicking about what could happen next.”
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