The Trump administration’s plans to impose tariffs on a wide swathe of products and materials — reportedly including materials critical to the nation’s defense supply chain — could drive up some military programs’ costs and cause delays, analysts told Defense News.
The cascade of negative effects could become a byproduct of the intended benefits, which include pushing companies to expand domestic processing of materials, such as steel and rare earths that are vital to specialized microelectronics, and lessening America’s dependence on foreign suppliers.
No tariffs have officially been put in place by the new administration, and President Donald Trump has been vague on implementation details. The Washington Post reported Jan. 6 that Trump’s aides were considering far-ranging tariff plans on imports that are vital to national security and other key sectors.
Those reported plans, described to the Post by three people familiar with the matter, include applying tariffs to steel, iron, aluminum and copper as part of a strategy to bring key elements of the defense industrial supply chain back to the United States, as well as tariffs on energy-related materials such as rare earths and batteries.
A source familiar with the administration’s plans told Defense News that Trump has not yet made up his mind on timelines and other details of the tariff policies. But the intention to strengthen national security and defense is a key factor behind the administration’s approach to tariffs and its plans to return more manufacturing to the U.S., he said.
“Defense matters are definitely part of the calculus here,” said the source, who spoke to Defense News on the condition of anonymity.
But experts warn that defense acquisition will suffer if tariffs are imposed on critical materials that go into military systems.
“It’s going to cause prices to go up,” said Bryan Clark, a senior fellow and director of the Center for Defense Concepts and Technology at the Hudson Institute. “And because these are commodities, if the prices go up because of these tariffs, that kind of affects everybody all at once. Just like oil: If you cut off a supply from one place, or make a supply from one place more expensive, everybody else takes advantage, and the prices all go up everywhere.”
Clark compared the potential disruption of tariffs to that of the COVID-era supply chain crunch. As the pandemic snarled production of key items and shipping worldwide, inflation exploded and defense contractors saw their costs shoot up. Some of those programs were restructured to deal with the COVID fallout or had to get additional funding from Congress — while other companies faced major losses.
And shipbuilding — which relies on mammoth quantities of steel to build the Navy’s aircraft carriers and other vessels — could be most significantly affected by tariffs, experts said.
“Costs [for shipbuilding] are going to go even higher,” said Todd Harrison, a senior fellow at the American Enterprise Institute. “Delays will get even longer. Nothing good is going to come from this for shipbuilding; it can only make a bad situation worse.”
Forcing function
Tariffs are taxes on imported foreign goods, which governments use to try to bolster domestic industries. Companies that continue importing the affected goods — whether through choice or necessity — tend to recoup the penalty paid to the government with price increases. This ultimately makes their offers of foreign-made goods less attractive in the marketplace, or so the theory goes.
Trump has made tariffs a central part of multiple plans for his second administration, and he sees them as leverage on economic, diplomatic and immigration matters.
In a contentious interview with a senior Bloomberg News editor in October 2024, Trump said tariffs could either bring in “hundreds of billions of dollars” that could reduce the deficit, or they could strong-arm companies to bring manufacturing back to the U.S.
“The higher the tariff, the more likely it is that the company will come into the United States and build a factory in the United States, so it doesn’t have to pay the tariff,” Trump said.
Multiple economists, including Mark Zandi, the chief economist for Moody’s Analytics, say the wide-ranging tariffs Trump proposed could lead to higher costs for consumers, as well as other negative economic effects.
The Post reported that the revised tariff plan now under consideration would apply to goods from all nations but would be tailored to specific sectors, including medical supplies and energy production. The Post reported this would be a scaling back of Trump’s campaign trail promises to levy “universal” tariffs of 10% to 20% on all imports to the United States.
After the Post story was published, Trump bashed the article’s assertion that his tariffs would be “pared back” as “fake news,” but did not challenge its reporting about what sectors might be covered by tariffs.
The source familiar with the administration’s plans pointed to the “America First Trade Policy” memo Trump signed the day of his inauguration as a “blueprint” for the coming trade approach.
That memo calls for considering tariffs to counter trade deficits with other nations and punishing China for trade violations and intellectual property theft. The memo also said the administration wants to review import adjustment measures on steel and aluminum “in responding to threats to the national security of the United States.”
In his first days in office, Trump held back on worldwide tariffs on all goods in favor of possible 25% tariffs on Canada and Mexico, which could start as early as February. But Trump did not rule out the so-called blanket tariffs, saying, “We’re not ready for that yet.”
Tariffs on critical metals could roil the defense industry, posing problems for contractors that build ships or armored ground vehicles.
Steel accounts for more than half the weight of massive aircraft carriers, which can top 100,000 tons. The Shipbuilders Council of America declined to comment on tariffs, but said companies building ships for the Navy try to use as much domestic steel as possible. When not enough U.S. steel is available, the council said, shipbuilders have a process for sourcing that material from allies.
In many cases, ”buy American” regulations compel the government to purchase materials or goods from U.S. companies. But even defense programs that already obtain parts and materials from U.S.-based sources could see their own costs go up, Harrison said. If tariffs drive up demand for domestically-produced materials, he said, the supply will get tighter and prices paid by all customers would likewise increase.
“For defense, you’re already required, in many situations, to source from the U.S., but now you’re going to have all these other private companies that are also competing [for] that U.S. source of material,” Harrison said. “So you could see some supply-demand mismatch, transient shortages, and that bids the price up higher for U.S. materials. Even though the tariff doesn’t apply to U.S., it ends up making U.S. prices go up.”
And in the end, the Pentagon will likely end up shouldering at least some of the added costs from tariffs on key materials, Harrison said. Cost-reimbursable contracts, which are commonly used for major weapon systems, would allow contractors to directly add rising costs to the bill they send the Pentagon, he said.
“One way or the other, the cost will get passed on to the government,” Harrison said. “Contractors are “not just going to pay it themselves, if there’s any way they can avoid it.”
Firms that have fixed-price defense contracts, which typically put contractors on the hook for cost overruns, would find it trickier to pass on those cost increases, he said. Some fixed-price contracts have clauses allowing adjustments for changing economic conditions such as inflation, he said, which could come into play with tariffs and trade wars.
Boeing, in particular, has been stung in recent years by fixed-price contracts on programs such as the KC-46 Pegasus refueling tanker, and some companies have sworn off agreeing to such deals in the future.
Tariffs could lead to shortages of key materials, Harrison said, as they shake up the supply chain and drive up demand for domestically-sourced materials. This might be temporary as the industry adjusts, he said — but it could lead to some delays in programs. Shipbuilding programs, which already frequently fall behind schedule and rely on great quantities of steel, could be particularly vulnerable to tariff-driven delays.
“As soon as the prices for foreign steel go up, U.S. steel makers will raise their prices in response,” Clark said. “Very quickly, you’ll see prices for all shipbuilding programs going up because of the steel … It’ll be noticeable.”
The Navy and Pentagon will have to account for those rising costs, possibly by shifting funds away from other programs or by asking Congress to appropriate more money, Clark said.
The Trump administration could use the Defense Production Act to “jump the queue and become the priority customer,” Harrison said, which could mitigate some of these shortages. But, it would take time to identify the material shortages and then enact the DPA process, he added. Until then, there could be disruptions.
Title III of the Defense Production Act, which allows the government to invest in the domestic industrial base to expand production capacities and plug gaps in industries needed for national defense, could also help out with tariffs, Clark said.
“There’s certainly opportunities here to turn this potential disadvantage of the tariffs – when it comes to DOD’s prices – into an advantage,” Clark said. DPA could be used “to partner with companies that are getting this windfall [from tariff-driven higher prices] to incentivize them to make more investments in their domestic manufacturing.”
Aviation worries
The aerospace industry is already looking very closely at the potential effects of tariffs, according to an expert in the aerospace and defense industry who requested anonymity in order to speak freely about the issue.
Although there aren’t many specifics yet about what tariffs will look like in the new administration, the industry tracked the effect of tariffs during the first Trump administration and into the Biden administration, the expert said.
Steel, iron, aluminum and copper are all necessary for building airplanes, but the relatively lightweight aluminum is particularly important. Aluminum is prized in aircraft manufacturing for its high strength-to-weight ratio and is commonly used in planes’ surfaces, air foils and interior structures.
Copper is also used for wiring, which is increasingly important as aircraft get more and more computerized.
Tariffs can be useful tools for correcting trade imbalances that have hurt the United States, the aerospace expert said — but that isn’t the situation the aerospace industry is facing. The domestic aerospace and defense industry had a trade surplus of about $114 billion in 2024 and has been a major exporting sector for decades, the expert said.
“For the aerospace sector, there actually is no trade imbalance,” the source said. “We export more than we import. And as one of the key metal-bending manufacturing exporters in the United States, this is the kind of trade that you want to see coming out of the country.
“We want to make sure that where there is a need for a tariff, that it is targeted and specific,” the source added. “That [it] won’t impact the overall aerospace and defense sector.”
It remains unclear who would shoulder the burden of the rising costs from tariffs affecting aircraft production, the expert said. If the government holds firm on the originally agreed-upon prices while material costs rise, manufacturers could have to eat those tariff costs.
Winners and losers
Tariffs could lead to some benefits, Clark said, particularly by incentivizing U.S. firms to beef up domestic processing capacity of materials, such as steel and rare earths, which are necessary for specialized microelectronics used in high-tech defense products.
“The DOD and civilian industry are putting a lot of money into new processing methodologies for rare earths,” Clark said. “This could be an opportunity. The tariffs, combined with that investment that’s been made, might actually promote a domestic ore-processing industry for rare earths that we haven’t had before. That could be a game-changer.”
Processing capabilities — particularly of rare earths, which is lacking in the U.S. and largely controlled by China — will take time to build up, he acknowledged.
The U.S. steel industry has great potential but has been undercut by foreign suppliers that sometimes dump cheap steel into the American market, Clark said. Tariffs could provide an opportunity to reverse that undercutting — but the domestic steel industry needs to invest more resources to expand and modernize its production capabilities to take advantage of it.
The source familiar with the administration’s plans argued tariffs on steel and aluminum during the first Trump administration didn’t lead to broad inflation in the economy. Potential tariffs on materials going into defense products would not necessarily mean higher prices, he said.
“It’s a little more complicated than a one-to-one, ‘a tariff goes on steel or aluminum or copper, and therefore the cost [of a product] goes up,’” the source said. “It’s a little more dynamic than that.”
However, a Moody’s analysis in October 2024 found the first Trump administration’s tariffs, which were more limited than current plans, “did measurable economic damage, particularly to the agriculture, manufacturing and transportation industries.”
And some people in and around the defense industry remain wary.
“A tariff on items that are intended for the U.S. military by the United States government is a tax on itself,” the defense and aerospace industry expert said. “To us, that doesn’t make a lot of sense.”
Stephen Losey is the air warfare reporter for Defense News. He previously covered leadership and personnel issues at Air Force Times, and the Pentagon, special operations and air warfare at Military.com. He has traveled to the Middle East to cover U.S. Air Force operations.
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