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The Section 232 Investigation on Commercial Aircraft
Photo: JASON REDMOND/AFP/Getty Images
A trade issue quickly moving to the front page is the president’s use of Section 232 of the Trade Expansion Act of 1962 to launch investigations into whether imports in specific sectors of the U.S. economy pose a national security threat. Since any tariffs imposed under this statute will be separate from the ongoing trade negotiations with many countries, there are concerns that the United States may be “moving the goalposts” by imposing new tariffs after agreements on the threatened ones have already been reached. This commentary will discuss the provision in general, identify the sectors under investigation, and then look more closely at one in particular—commercial aircraft, engines, parts, and components.
Q1: What is Section 232?
A1: Section 232 of the Trade Expansion Act of 1962 allows the president to impose trade restrictions if he concludes that imports are threatening U.S. national security. The statute assigns the investigation to the Department of Commerce, gives it 270 days to complete its work, and gives the president an additional 90 days to decide what, if any, action to take if the Department of Commerce finds a threat and makes a recommendation. There is no formal congressional role in this process—a sore point in Congress that led to two competing bills to change that, neither of which has become law.
Trump appears to like this statute, probably because it lets him do pretty much what he wants and because it is more likely to survive judicial scrutiny than his use of the International Economic Emergency Powers Act, which is currently under review in the Court of Appeals for the Federal Circuit following a Court of International Trade decision that went against the president.
Q2: What sectors are under investigation?
A2: So far, there have been 12 investigations (counting steel and aluminum separately): steel and aluminum (completed), autos (completed), copper (announced but not formally in effect), lumber, semiconductors and the tools to make them, critical minerals, pharmaceuticals, heavy trucks, commercial aircraft and parts and engines, drones, and polysilicon. Most of these began in April or May, but the last two—drones and polysilicon—began in July.
Q3: How are the investigations conducted?
A3: The investigations are conducted by the Bureau of Industry and Security in the Department of Commerce, but it taps into expertise from other parts of the department and other agencies. In the case of commercial aircraft, the Department of Commerce’s International Trade Administration is also participating. In the past, investigations have usually taken most of the 270 days available, but this time, results for the earlier batch are expected sooner, stretching from late this month to Labor Day.
This has led to suggestions that the investigations are not serious—that the results have been predetermined, and the process is pro forma. We will probably never know the truth of that, but according to the Congressional Research Service, the statute does require a detailed analysis of a number of specific issues that take time:
Defense. (1) domestic production required for projected U.S. defense needs; (2) capacity of domestic industry to meet such needs; (3) existing and anticipated availability of the human resources, products, raw materials, production equipment and facilities, and other supplies and services essential to U.S. national defense; (4) growth requirements of domestic industry and related supplies and services to meet U.S. defense needs and necessary conditions to assure such growth; and (5) the impacts of goods imports on U.S. industry and capacity to meet U.S. defense needs.
Economy. (1) “the impact of foreign competition on the economic welfare” of domestic industry; and (2) the “displacement” of U.S. products by “excessive imports” causing effects including “substantial unemployment,” decreases in government revenues, and/or loss of investment and skills.
In conducting the investigation, the Department of Commerce needs to decide two things: whether imports constitute a national security threat, and, if so, what, if anything, should be done about it. If the Department of Commerce finds a threat, it must also make a recommendation to the president, although he is free to ignore it and do something else.
For the investigations completed so far—steel, aluminum, and autos—the remedy imposed was tariffs, 50 percent on steel and aluminum and their downstream products, and 25 percent on autos. The announced but not yet formalized action on copper is also a 50 percent tariff.
Q4: What makes the commercial aircraft investigation unusual?
A4: The investigations thus far have primarily focused on sectors facing significant import competition and, in some cases (steel), having a long history of seeking protection from the government. The aircraft sector is different in that, while it faces vigorous competition, it currently has a trade surplus of about $89 billion in civilian aircraft, engines, and parts. In addition, Boeing has a lengthy pipeline in place. Its total backlog is approximately 6,300 planes, consisting of approximately 4,800 737s, 621 777s, and 48 787s. At current production rates, that is approximately an 11.5-year backlog.
In addition, the sector benefits from an existing multilateral agreement, the 1979 Agreement on Trade in Civil Aircraft, which was intended to regulate trade in the sector. Participating countries agreed not to impose tariffs on aircraft, aircraft engines, flight simulators, and parts and components thereof. They also agreed to limits on subsidies, a commitment that led to a lengthy dispute in the World Trade Organization between the United States and the European Union that remains unresolved. Overall, the agreement has led to considerable success for the U.S. civil aircraft industry. As the Aerospace Industries Association (AIA) put it,
. . . thanks to this agreement, the U.S. aerospace industry boasts the highest trade balance of any manufacturing sector, nearly $75 billion, and the second highest level of exports, exceeding $135 billion. Over the past 45 years, since the agreement was first created, U.S. commercial aerospace exports have surged by more than 2,100 percent.
Finally, the sector has exceptionally complicated supply chains. This graphic illustrates the complexity of the Boeing 787, focusing on first-tier suppliers:
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Senior Adviser and Scholl Chair Emeritus, Economics Program and Scholl Chair in International Business
Remote Visualization
Photo: Boeing
The result is an industry highly dependent on an international network of suppliers that has been very successful over the decades. The fact that final assembly remains in the United States distinguishes it from some of the other sectors under investigation, such as pharmaceuticals.
Q5: What is the likely outcome of the investigation?
A5: Precedent suggests that the most likely outcome will be the imposition of tariffs, since that has been the chosen remedy in all the other Trump-initiated cases so far, and the president has made clear that they are his favorite tool. If tariffs are imposed, an important question will be whether they are only on finished aircraft or whether they will also be placed on parts and components, particularly engines.
If tariffs are confined to finished aircraft, then the primary victim will be Airbus, which is Boeing’s main competitor. It also appears possible that this issue will be addressed as part of the U.S.-EU trade negotiations. One of the proposals allegedly on the table would have the European Union agree to a 15 percent overall tariff but would provide exemptions for selected sectors, one of which would be aircraft.
As mentioned above, there are also pending dispute resolution cases in the World Trade Organization regarding subsidies on civil aircraft, in which each side won a ruling against the other. Retaliatory tariffs on both sides were temporarily suspended in an agreement that expires in June 2026. An agreement with the European Union now might also supersede that suspension.
If tariffs are applied to aircraft parts and components, including engines, then the effect on Boeing would be significant in view of the substantial amount of foreign content in its aircraft. At the same time, tariffs would directly impact supplier countries. According to the International Trade Administration, the major ones are France, Canada, Japan, the United Kingdom, and Germany. The U.S.-UK trade agreement exempted UK aircraft exports from the tariffs, and other agreements with the European Union, Canada, and Japan could address tariffs on their aircraft exports as well. Whether separate tariffs imposed pursuant to the Section 232 investigation would supersede those agreements remains to be seen.
Q6: What would be a better solution?
A6: Whether any “solution” is necessary depends on whether or not there is a national security threat, so the best answer may well be that the industry is robust, not threatened, and no action is necessary. That does not, however, mean the industry is without challenges, and AIA submitted comments to the Department of Commerce that included a number of recommendations (see the complete comment for a more detailed list):
Internationally:
- Pursue preferential treatment during trade negotiations
- Drive production capacity and delivery through foreign investment access
- Preserve reliable access to suppliers
Domestically, promote a diverse domestic supply chain by leveraging existing resources:
- Streamline certification requirements
- Support capital investment for new entry suppliers
- Drive domestic production to ensure access to critical minerals
- Stabilize the aviation manufacturing sector through workforce investment
- Ensure U.S. aviation manufacturers continue to innovate and maintain technological superiority
It is notable that none of these recommendations include tariffs, and several of them move in the opposite direction. For example, one of the most important is preserving reliable access to suppliers, which would be compromised by the imposition of tariffs.
While tariffs may be an appropriate remedy for a national security threat in some sectors, they would not be a good choice for civil aircraft for several reasons. First, the complexity of the existing supply chains and the sophistication of the technology involved in some of them, such as engines, make moving them difficult and expensive.
Second, many aircraft customers are government-owned airlines, which means negotiating directly or indirectly with government authorities, which often have objectives other than price and delivery. It has not been unusual for governments to demand a share in the production process as a condition for a large order of planes, which has forced manufacturers to build supply chains that can accommodate those demands. Those commitments are not easily undone, and doing so would impact future sales. Adding tariffs would not force supply chain rearrangement but would simply make inputs more expensive.
Third, if there is a security threat looming, it is likely to come from China, which is well on the way to producing its own line of civil aircraft. Given China’s long history of overcapacity and overproduction that undermines industries in other countries, it is logical to expect the same thing to happen in the aircraft sector at some point in the future. Tariffs at this point would be irrelevant since there are no exports. A more effective approach would be to defer certification of Chinese aircraft for landing in the United States and to encourage other countries to do the same. Short of that, U.S. authorities could use the certification issue as leverage in negotiations.
For these reasons, it would be in the industry’s interest and the U.S. national security interest if the administration focused on the special circumstances of the industry and did not take its conventional approach of simply levying tariffs.
William A. Reinsch is a senior adviser with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C.