Prospective sales of U.S. military equipment to foreign allies have reached $63 billion so far this year, roughly 50 percent higher than in all of 2017, easing concern that President Trump’s tariffs would curb deals.
Executives at U.S. defense contractors told analysts and investors this summer that they had no seen no signs yet of allies using military sales as leverage in trade negotiations, though Cowen Washington Research Group analyst Roman Schweizer said Canada and Germany remain test cases.
Germany alone accounts for $3.9 billion of weapons orders placed from Oct. 1 through July 31, according to an analysis by the Washington Examiner. Turkey, which is under pressure from President Trump after rejecting his demands to release a U.S. clergyman being held in the country, is another unknown, Schweizer said.
“April was a massive month for announced deals but there has been a bit of a summer swoon with fewer monthly announcements,” he pointed out in a report this month. “We remain concerned that trade/tariffs could impact U.S. foreign sales and industrial partnerships.”
Duties of 25 percent on steel imports and 10 percent on aluminum from Canada, Mexico, and Europe imposed this spring may force those countries to scrap deals with U.S. weapons-makers, Schweizer said previously. International tensions heightened further when Trump threatened tariffs on foreign automakers, then cooled after he and European Commission President Jean-Claude Juncker agreed to continue talks and work on reducing trade barriers.
Economists, corporate executives and some lawmakers from the president’s own party have warned that his protectionist trade policies, including threats to impose duties on as much as $500 billion of Chinese goods, risk undermining the benefits of last year’s tax cuts.
Trump, however, has largely dismissed their concerns, and the defense industry appears sanguine for now.
“We’re not seeing any impact today,” Raytheon Chief Financial Officer Anthony O’Brien told analysts in late July, when the contractor reported revenue had grown 5.5 percent to $6.6 billion. “Nor do we expect the tariffs will have an impact, certainly not a direct impact, even when we look forward into the supply chain.”
At Lockheed Martin, the F-35 fighter jet – the most expensive weapons program in U.S. history with a price tag of $406 billion – may face unique risks, Credit Suisse has warned. The fighter depends on international partners as sources of funding and demand, the lender noted, and European Union members account for about 292 orders, while Canada has booked another 65.
Together, those account for about 62 percent of international sales, but Lockheed hasn’t disclosed any issues with the orders so far.
