Tariffs on steel and strategic materials being considered by the Trump administration could add to the costs of defense programs and disrupt supply chains.
The Trump administration plans to impose tariffs on critical materials, such as steel, aluminum and rare earths, to strengthen domestic industries and reduce dependence on imports. However, these measures could increase the costs of defense programs, particularly in shipbuilding and aeronautics, and cause project delays. Experts warn that these policies could lead to a general rise in prices, affecting both defense contractors and the Pentagon.
The tariff strategy: objectives and limits
The aim of the tariffs envisaged by the Trump administration is to reduce US dependence on foreign imports by stimulating domestic production. Targeted sectors include steel, aluminum, copper and rare earths, all essential to the manufacture of strategic products such as naval vessels, combat aircraft and advanced electronic systems.
Expected economic impact: The tariffs, expected to range from 10% to 25%, would increase the cost of imported materials. For example, steel accounts for more than 50% of the total weight of US Navy aircraft carriers, which can exceed 100,000 tons. A rise in steel prices could therefore increase the cost of shipbuilding programs by several hundred million euros.
However, critics point out that these measures risk disrupting existing supply chains and causing price inflation. Companies, forced to pay high tariffs, will pass on these costs to their customers, including the US government.
The consequences for defense: costs and delays
Tariffs could lead to increased costs for defense programs, particularly in sectors such as shipbuilding and aeronautics. These industries, already facing budgetary and logistical constraints, are heavily dependent on the materials targeted by the tariffs.
- Shipbuilding:
Military vessels, such as destroyers and aircraft carriers, require massive quantities of steel. A 10% increase in the price of steel could add hundreds of millions of euros to the total cost of building an aircraft carrier. In addition, delays in the supply of materials could exacerbate delivery delays, which are already frequent in this sector. - Aerospace:
Aluminum, used for its lightness and strength, is a key material in the manufacture of fighter jets and drones. A rise in aluminum prices could slow down production of programs such as the F-35 Lightning II, each unit of which already costs around 80 million euros. At the same time, aircraft electronic systems require rare earths, 80% of whose global supply** comes from China. - Effects on subcontractors:
Small and medium-sized companies, which play a crucial role in the defense supply chain, could be hardest hit. Rising material costs could reduce their profit margins, leading to bankruptcies or delays in component delivery.
The role of rare earths: a strategic challenge
Rare earths, essential to the manufacture of advanced microelectronics and weapons systems, occupy a central place in the strategy of tariffs. These materials are used in the electronic components of missiles, radars and combat aircraft.
Dependence on China: At present, China controls around 60% of the world’s rare earths production** and has processing capacities far exceeding those of the USA. This dependence poses a strategic risk in the event of conflict or prolonged trade tensions.
National initiatives: The United States has invested in projects to develop domestic processing capacity. For example, MP Materials’ project in Nevada aims to increase domestic production, but this will require additional investment and several years before reaching significant scale.
Mitigation mechanisms: possible solutions
To limit the impact of tariffs on the defense industry, several solutions are envisaged:
- Defense Production Act (DPA):
Title III of the Defense Production Act allows the government to prioritize orders for critical materials and invest in expanding domestic production. This mechanism could reduce material shortages while accelerating production lead times. - Subsidies for domestic producers:
Tariffs could encourage steel and aluminum producers to modernize their capacities. However, these investments require substantial subsidies to remain competitive with cheaper imports. - International partnerships:
To reduce the risk of dependence on countries such as China, the United States could strengthen its partnerships with allies, notably Canada and Australia, for the supply of rare earths and other strategic materials.
Long-term effects on the defense industry
While the tariffs may enable some production capacity to be relocated, experts warn that these results will take several years to materialize. In the meantime, defense companies will have to absorb higher costs, which could lead to an overall increase in the defense budget.
Example in figures:
The annual cost of weapons programs in the USA currently exceeds €700 billion. A 5% increase in material costs due to tariffs could add 35 billion euros per year, requiring budget reallocations or cuts in other areas.
Companies with fixed-price contracts, such as Boeing on the KC-46 Pegasus program, will be particularly vulnerable. These contracts oblige manufacturers to cover cost overruns, which could reduce their profitability or slow down project delivery.
War Wings Daily is an independant magazine.