Donald Trump has returned to the White House Jan. 20, having promised import taxes that could raise costs and reduce access to critical materials for the United States space industry.
During his first term, Trump imposed sweeping tariffs on imports from China and other countries, targeting goods such as steel, aluminum and electronics.
While these tariffs strained supply chains, the space industry also began feeling the far more significant impact of the COVID-19 pandemic in early 2020, leading to widespread disruptions, delays and squeezed profit margins.
The subsequent Biden administration largely maintained Trump era tariffs, with some adjustments, even increasing them on certain Chinese imports to protect American industries from unfair competition.
Still, Trump’s latest proposed tariffs are far more severe, covering a broader range of goods and trade partners and fueling speculation about their far-reaching impact on an already overheated space economy.
In addition to increasing tariffs on China by 10%, the President-elect recently said one of his first actions in office would be to impose a 25% tariff on all products imported from Mexico and Canada as part of efforts to reduce illegal immigration and drug smuggling.
And even the European Union has come into the crosshairs of Trump’s aggressive approach to tariffs, a term he has called the most beautiful word in the dictionary.
Consider Europe’s Thales Alenia Space, which is a major supplier of pressurized modules to the U.S., and is building three such vessels for Axiom’s upcoming commercial space station.
Jared Stout, Axiom’s chief government relations and communications officer, told SpaceNews the company does not anticipate potential tariffs hurting its business needs as currently envisioned. Thales Alenia Space declined to comment.
But experts anticipate tariffs will generally lead to higher costs for critical materials across the industry, in addition to potential supply chain disruptions and increased pressure on manufacturers to localize production.
Mexico’s aerospace sector has also grown significantly in recent years, producing components that are often integrated into larger systems, such as satellites and ground stations, and exported to the U.S.
Canada’s MDA, which provided the robotic space arms that helped assemble the International Space Station and also supplies satellites and their components internationally, declined to comment.
Tariffs 101
If such tariffs take effect, companies from targeted countries would need to pay a fee to the U.S. government when selling affected items to satellite or rocket manufacturers in the U.S.
“Typically, a fair portion of the cost of tariffs is paid by buyers in the form of a higher price for the goods that are imposed with a tariff,” Carla Filotico, partner and managing director of research firm Novaspace, said via email.
“So, in turn, this strategy will negatively impact even the U.S. government [because] they’ll have to pay more to procure space systems and missions.”
Some manufacturers may choose to absorb increased costs to remain competitive, Filotico added, lowering profits and exacerbating financial strains in an already challenging market.
The space industry depends heavily on rare earth metals and other critical materials, including neodymium, dysprosium and high-purity graphite, for electric propulsion systems, sensors and other key satellite technologies.
China dominates the production and refining of many of these resources, particularly rare earth elements, gallium and graphite, making the supply chain vulnerable to disruptions.
With limited short-term alternatives, the uncertainty surrounding proposed trade policies risks causing delays, increasing costs and reduced investor confidence.
Most central banks, which have been gradually reducing interest rates from record highs over the last decade, are now pausing to assess how proposed tariffs might impact global markets, noted Mark Boggett, CEO of British early-stage space investor Seraphim.
“If these tariffs are introduced, it’s going to be hugely inflationary,” Boggett said, “so they don’t want to be dropping interest rates at the same time that there’s a new driver for inflation.”
This risks slowing financial recoveries, he continued, potentially putting the U.S. and other markets on a more recessionary footing due to inflation and the need to hold interest rates higher for longer.
China could also dump goods too challenging to sell to the U.S. on other markets, benefiting companies that are not bound by International Traffic in Arms Regulations (ITAR), an export control law that restricts American firms from sharing or selling space and defense technologies with most international partners.
“We could find that access to the components that are needed in every satellite suddenly become cheaper and more available as a consequence of tariffs in the U.S.,” Boggett said.
Silver lining
Ultimately, Boggett said severe tariffs would drive U.S. sourcing and domestic production, leading to job creation and growth, enabling the country to become more self-sustaining over time.
However, developing domestic capabilities to match the current quantities, quality and prices available in today’s space economy would require significant time and investment.
The space sector relies on a complex and globally integrated supply chain, Novaspace’s Filotico noted. Imposing tariffs on imported materials, components and systems could lead to potentially far-reaching manufacturing delays.
Even beyond the issue of whether raw materials are available in the U.S., she said manufacturers relying on third-party parts or systems would need substantial investments, expertise and time to bring those supply chains in-house.
“Firms need time to prepare and incentives to adapt,” she added. “Would Trump support this?”
U.S.-focused manufacturing strategies could significantly accelerate the shift toward increased automation in the space industry.
Jeff Hassannia, president of U.S. advisory firm Aerospace BD, said that while many space companies are increasingly using robots and other tools to automate manufacturing, the shift has not reached its full potential due to the availability of low-cost labor options.
As a former senior vice president of business development, strategy and technology at Cobham Advanced Electronic Solutions, a provider of space electronics and systems, Hassannia recalled how the U.S.-based company would ship parts to Mexico for simple but labor-intensive tasks, such as winding wires around a magnet.
These parts, not subject to ITAR, were then returned to the U.S. after leveraging lower labor costs abroad.
“And that cost advantage was significant,” he said. “It would offset the inefficiencies of having to ship something down and bring it back.”
Strict tariffs could make such practices less viable, potentially accelerating the development of domestic manufacturing capabilities. There “might be some little pain up front, but that might be a good thing,” he said, adding that many U.S. companies supply the automation equipment being adopted.
However, Filotico stressed firms may not necessarily adapt by internalizing production within the U.S.
Instead, she said they are likely to evaluate other opportunities, potentially shifting production to countries exempt from imposed tariffs.
This approach could undermine the intended “Made in USA” impact that government intervention seeks to achieve in the first place, she said.
Certain uncertainty
It also remains to be seen whether the latest round of proposed Trump tariffs is merely a negotiation tactic to bring countries to the table.
But at face value, Filotico said they present multifaceted challenges to the space industry, forcing companies to strategically navigate these complexities to maintain operational efficiency and global competitiveness.
To prevent tariffs from backfiring on national budgets, policies and long-term strategies, she suggested the U.S. government explore targeted incentives to help the industry adapt.
This article first appeared in the January 2025 issue of SpaceNews Magazine with the title “Grounded by Tariffs.”
