Global Space Industry Braces for Impact of US Tariffs

The world of global trade is bracing itself for the impact of tariffs on goods and raw materials imposed by the administration of U.S. President Donald Trump. How much will these import taxes affect the global space sector? Analysts agree that at this stage, we can only guess.

It takes raw materials from all over the world to make a satellite — aluminum from Canada to make the spacecraft body, lithium from Chile for on-board batteries, Brazilian or Canadian silicon to produce solar panels. It doesn’t end with raw materials. The journey of components and subsystems before the whole satellite is put together and send off to space tends to be equally intercontinental with manufacturers procuring from around the world.

In a world burdened by tariffs imposed by the Trump administration, this global back and forth may result in a notable cost increase of space technology as import tax will be stamped on materials and goods every time they cross the U.S. border, coupled with potential retaliatory tariffs.

Space projects may hit hurdles raising capital with delivery delays to be expected and in some cases possible cancellations. How severe the fallout will be is at this stage uncertain. Not yet agreed exemptions may apply to critical technologies while more advantageous deals may be negotiated between some states. Retaliatory tariffs, on the other hand, would further exacerbate the problem.

Too Many Question Marks

Pacôme Révillon, CEO of space consultancy firm Novaspace thinks that a return to a pre-tariff era is unlikely. How much the space industry will suffer in this new world and how it will respond is, however, hard to predict.

“Space by itself is a relatively small industry,” Révillon tells Via Satellite. “That may be a challenge. Does it fall within aerospace? Or does it fall within electronic goods? We have to wait and see,” he said referring to possible exemptions and tariff bands.

Other analysts discuss the matter with equal caution, although they sometimes disagree in their estimates. Companies either refrain from discussing the issue entirely or intend to project a positive vision of the future.

U.S.-headquartered space data company Spire Global operates a constellation of about 100 nanosatellites and produces its spacecraft in Glasgow in the United Kingdom. That means the satellites will likely be subject to tariffs on their way to the launch pad in Florida. Still, in its latest earnings announcement, Spire said it “didn’t expect tariffs to have a substantial impact” on its business.

“This is a result of the relatively low cost of our satellites, along with our planned capabilities to manufacture satellites locally,” a representative for Spire told Via Satellite. “The impact we do see is largely associated with U.S. launch activity. When the satellites are brought into the U.S. for launch, a tariff can become due. While it’s a minimal impact, we are continuing to look for opportunities to reduce this impact.”

A representative of one Canadian space company said it’s “undeniable” that U.S. tariffs will impact the supply chain and sales of most Canadian businesses.

“As a small business, we approach challenges by being flexible, quickly redirecting to overcome roadblocks to ensure that we adapt and thrive,” the representative said. “The current trade war between the U.S. and allied countries is not ideal, but it reminds us that we have an established supply chain globally, and can take advantage of programs within Canada to mitigate tariffs when there aren’t options outside of the U.S.”

10 to 15 percent

For space projects still in development, the impacts are likely to be more severe. Révillon estimates that tariffs imposed by the Trump administration together with potential retaliatory tariffs put in place by other countries could increase the cost of space projects by 10 to 15 percent.

“There is quite a chance to see space infrastructure getting more expensive,” Révillon says. “It goes through the entire supply chain, from where you acquire raw materials to where you manufacture your components and systems.”

Components designed in the U.S. are frequently manufactured in Asian countries, which offer cheap labor. The materials, components and subsystems frequently cross borders multiple times before they reach the launch pad, resulting in a potential accumulation of the import tax value.

Even the most modest cost increases could thus result in hundreds of millions of dollars added to the price of large-scale projects such as satellite mega-constellations, Révillon added.

The current uncertainty is likely to affect fund-raising, at least in the short term, as the lack of clarity will demotivate lenders and shareholders, according to Révillon.

“If you're not sure about the cost of your system, or you have to take more provisions because you can't guarantee the cost by a certain volume, then that can result in quite some delays for new financing,” he says. “There is also the question of the price to end users. Do you need to increase that as well? what's the elasticity you really have there?”

Space Independence

Pierre Lionnet, a space economist and managing director of the European space industry’s trade association Eurospace, says that globally, the value of spacecraft exports has decreased over the past decade as nations have begun to pursue self-reliance in critical technology manufacturing.

The value of global spacecraft exports peaked in 2017 at around $4.5 billion (according to Eurospace data) but shrunk to less than $1.3 billion by 2023. The U.S. space industry slashed the overall value of its critical technology imports over the past decade thanks to the success of the SpaceX Crew Dragon program, which did away with the reliance on Russian crewed launches in the aftermath of the Space Shuttle retirement.

While some American operators procure satellites from Europe, the U.S. can, Lionnet says, mostly do it all at home. The European space sector, on the other hand, still heavily relies on imports of U.S.-made electronics for satellite production. European companies would therefore mostly suffer if the European Union were to introduce its own tariffs on U.S. goods as a retaliation for Trump’s moves.

“The U.S. has imported around 400 million dollars’ worth of satellites per year over the past decade,” Lionnet tells Via Satellite. “It’s a very small business. They export much more than what they import. But even in Europe, we have a total annual supply base of about 8 billion euro of building space systems and from that market only about 600 million is imported from the U.S.”

The trend of doing things domestically is likely going to strengthen with the introduction of tariffs. The Canadian space tech representative said the situation has sparked a global realization of the importance of sovereign space systems and operations. Yet they emphasized the company has valued relationships with government entities in the U.S. and the mission to build space technology “extends beyond a single administration.”

Lionnet also said that it’s not yet clear what types of tariffs would apply on space products. In April, the Trump administration placed 25 percent tariffs on European steel, aluminum and cars and a baseline 10 percent tariff on most other types of goods including aircraft. The administration, however, later introduced global exemptions on some goods such as electronic devices, chips, computers and solar panels, which many of the U.S.-domiciled tech giants manufacture in China and other Asian states.

The European Commission’s spokesperson told Via Satellite in mid-May that discussions about retaliatory tariffs were “paused at the moment” as the Commission was fully focused on negotiations.

“We are fully engaged in discussions with the U.S. and a negotiated solution remains our clear and preferred outcome,” the spokesperson said. “At the same time, we are preparing for the possibility that no agreement is reached with the U.S.; we prepare for all scenarios; all options are on the table.”

Exemptions and special deals are also a possibility. The U.K., for example, managed to negotiate a removal of tariffs on some goods and materials including steel and aluminum, both of which the U.S. imports in significant amounts. U.K.-made aircraft components including Rolls-Royce jet engines are also set to be exempt, according to reports.

Wind of Change

Regardless of the results of negotiations between the U.S. and its global partners, things in the space sector are likely to change. Mathieu Luinaud, a space sector analyst at PwC, expects companies to look for new suppliers either locally or in countries with friendlier trade policies. Although establishing a new supplier base will by itself come at a cost, companies are likely to choose the lesser evil and shop around to reduce uncertainty.

“If you are a satellite manufacturer that previously was importing components from the U.S., maybe you will try to find alternative suppliers elsewhere in the world to reduce the uncertainty, even if there is a small increase in cost,” Luinaud tells Via Satellite. “It still lowers the potential overall increase if you end up being subject to retaliatory tariffs from the EU on U.S.-imported goods.”

Luinaud, however, stresses that the U.S. and European space industries alike are already subject to requirements to source most components locally to be eligible to bid for lucrative government contracts, which drive the industry. Such preexisting arrangements give the space sector a specific status that may protect it from a full-blown effect of a tariff war if it were to erupt in earnest.

“Because of the dual nature of the space industry, the regulatory compliance in the U.S. already requests providers to manufacture a part of their components on U.S. soil if they want to serve the U.S. [defense], for example,” Luinaud says. “These requirements were in place before the tariffs were imposed, so it kind of protects companies that were already expecting to serve the U.S. market because they already had to set up manufacturing lines on U.S. soil in the past.”

NASA and the European Space Agency (ESA) similarly restrict most of their projects to bidders domiciled in the U.S. and ESA member states and cooperating states, respectively.

European aerospace giant Airbus, for example, has manufacturing capacities in the U.S. to produce aircraft and small satellites. Others are expected to follow suite.

“We can expect the same trend in space that we already see in electronic goods with, for example, Apple diversifying where it may manufacture its smartphones,” says Révillon.

One executive from a satellite manufacturer based in Europe with operations in the U.S., who requested anonymity to speak frankly, said the company is assessing the supply chain to see if it can make changes so that fewer components are shipped between the U.S. and Europe. Tariffs could cause the company to replace U.S. suppliers with European suppliers, or shift more of its assembly labor to the United States to avoid import tariffs.

“Do we stop buying from the U.S.?” the executive wondered. “I asked my head of procurement — Why would we buy [U.S.] stuff, bring it into Europe, pay duties, then bring it back and pay more duties?”

Révillon warns, however, that relocating a production facility could be a “multi-year effort” that will itself come with a price tag. Setting up new factories or replacing suppliers in a high-stakes fault-intolerant industry such as space could be more complicated than might appear at the first glance.

“You need flight proven technology, you need equipment that is qualified, so it will be a lengthy process,” he says.

The emerging business pressures may as well trigger a wave of mergers and acquisitions, according to Révillon, as some companies will seek to bring critical suppliers under their home roof to keep cost in check.

“Cost pressures are likely going to drive companies to think and innovate,” he says. “They may look for new solutions in the ground segment and seek to speed up digitalization and the deployment of software-defined solutions to reduce the volume of required hardware. I would also expect a drive to optimize manufacturing processes to reduce the cost of equipment.”

Pressure on Increased Sovereignty

The trade pressures will play into the scramble for increased sovereignty, which many countries have pursued for some time.

In Europe, for example, the Joint Task Force for Critical Non-dependence set up in 2008 by the European Commission, ESA and the European Defense Agency, seeks to limit Europe’s dependencies on imported technologies for critical space systems. For years, Lionnet said, the key problem has been electronic components and on-board computers, but R&D initiatives are underway seeking to develop homegrown European replacements.

Europe may also try to leverage Trump’s actions to force through the Buy European Act, which so far, has faced significant opposition. The Act would bind public entities to prioritize European companies in tax-payer-funded contracts. The U.S. has had a similar “Buy American Act” in place since the 1930s.

Whatever happens in the coming months, one thing is certain — the goal of reducing the cost of space technology and making it more affordable is likely to become more difficult to achieve.

The manufacturing executive said with how globally interconnected satellite supply chains are, agreed that tariffs introduce uncertainty and complexity that will likely impact new planned constellations that would compete with SpaceX’s Starlink constellation, especially any that involve global partnerships.

“All of these constellations want cheaper satellites so they can go up against Elon [Musk]. Well, they're just creating an uncompetitive environment. The price tag of all of that just went up,” the executive said. VS

Rachel Jewett contributed to this article