Following a chaotic fortnight for international trade, during which President Trump imposed and then partially rescinded wide-ranging tariffs on U.S. trading partners, lawmakers and defense executives alike are trying to make sense of and prepare for the likely effects of these tariffs on their businesses, constituents and international relationships.
In Congress this week, House Democrats decried the tariffs -- which currently sit at a minimum 10% rate on the bulk of U.S. imports -- arguing that they impose needless economic pain on U.S. allies and strain military alliances.
During an Indo-Pacific-focused hearing on Wednesday, Rep. Joe Courtney (D-CT) and other House Democrats said the tariffs are “driving our allies in the wrong direction” and raised special concern over the potential consequences for the trilateral AUKUS security pact with Australia and the United Kingdom.
Under AUKUS, the U.S. has agreed to sell at least three Virginia-class submarines to Australia beginning in the early 2030s and Australia has committed to giving the U.S. $3 billion to bolster its shipbuilding industrial base.
Australia delivered the first $500 million earlier this year and is expected to transfer a total of $2 billion to the U.S. before the end of fiscal year 2025, with $100 million per year to follow over the next decade. Despite this relationship, Australia has not been spared from the 10% tariff, the lawmakers pointed out.
“Australia has a free trade agreement with the U.S., there is zero tariffs on U.S. goods that come into Australia. There’s a two-to-one trade surplus from the U.S. into Australia,” said Courtney, the House Armed Services seapower and projection forces subcommittee ranking member. “They’re putting money into our industrial base and yet we are tariffing Australia at the same level as the country of Iran.”
House Republicans, meanwhile, sought to rebuff this criticism during the same hearing, with seapower and projection forces subcommittee Chairman Trent Kelly (R-MS) suggesting the pre-tariff status quo allowed American allies to take advantage of the U.S.
“I will tell you on tariffs, being taken advantage of is not how we become strong leaders in the community. Giving your kids everything they want is not good parenting. It is not about likability; it is about respect,” Kelly said.
Pentagon officials including John Noh, who is performing the duties of assistant defense secretary for Indo-Pacific security affairs, sidestepped questions on the tariffs’ effect on international relationships during the hearing, saying the issue is “beyond the purview” of his position.
Last week in the Senate, a bipartisan group of lawmakers succeeded in narrowly passing a resolution that, if signed into law, would cancel the 25% tariff applied to the majority of Canadian goods, including aluminum and steel used in shipbuilding. The resolution is thought to have little chance of passing the GOP-controlled House.
Proponents of the legislation, including Sen. Tim Kaine (D-VA), who represents a major shipbuilding state home to HII’s Newport News Shipbuilding, argued the Canada tariff will lead to heightened shipbuilding costs. Roughly half the aluminum and a third of the steel used in U.S. shipbuilding is imported from Canada, according to Navy officials.
Industry reacts
For its part, the Navy has maintained it is still assessing the impact tariffs will have on its shipbuilding programs and other acquisition pipelines. Meanwhile in the defense industry, the tariffs have received a mostly muted reaction from shipbuilders and defense companies.
HII CEO Chris Kastner has said the tariffs will have little impact on his company, which is involved in the construction of most of the Navy’s surface and undersea fleet. HII purchases most of its aluminum and steel domestically, a company source said.
General Dynamics Electric Boat, which collaboratively builds Virginia- and Columbia-class submarines with HII, declined to comment on the impact of tariffs. Electric Boat and HII are the only two domestic submarine builders.
But at Austal USA’s Mobile, AL shipyard -- which historically built aluminum vessels and is now transitioning to the production of steel surface ships and submarine modules -- the company is gearing up to weather the tariffs.
According to President Michelle Kruger, Austal USA is implementing a strategy to counter anticipated cost growth by buying material in advance and strengthening domestic supply lines.
“Clearly, the tariffs, especially for steel and aluminum, are near and dear to our heart,” Kruger said this week during the Navy League’s Sea-Air-Space conference. “What we've done in order to counter that is we have taken a three-pronged approach. The first one is to buy ahead of the tariffs, because we knew that the tariffs were coming so we could minimize the impact.”
In addition to buying in advance, Austal is attempting to “build up” its domestic suppliers and looking for other avenues to “recover some of the ‘delta’ that we may be experiencing,” Kruger added.
“When I look holistically at the potential impact of the tariffs, first and foremost, I think there's a reason why they were imposed, right? Whether you like it or not, it's up to you. But they were imposed to try to bring manufacturing back to the United States,” Kruger said.
Trump has argued the tariffs will help promote U.S. industry, increase the number of domestic manufacturing jobs and force other countries to negotiate more favorable trade agreements.
“So, accepting that, bringing that onboard, our next mission is to make sure that we mitigate the impact,” Kruger continued. “That's really what we're focused on, is making sure that it does not impact our ability to deliver ships at the pace we need to deliver them.”
Also appearing at Sea-Air-Space, Northrop Grumman executive Henry Cyr told Inside Defense the company is monitoring the evolving tariff situation, comparing it to the industry shake-up brought about by the COVID-19 pandemic.
“It will evolve, and we'll respond as we get a better understanding of it,” said Cyr, Northrop’s vice president for strategic command, control and communications systems. “COVID was sort of one of those ‘black swan’ events, and then we all adapted to that. Right now, we continue on with our plan, and then we'll respond as we get better understanding.”