As Trade Wars Intensify, Embraer Evaluates Impact

Embraer is assessing the impacts of the latest threat of U.S. tariffs, in particular to the Brazilian aviation industry, the airframer said, adding that it plans to address the topic more during its second quarter results call on August 5. The company further said that it is continuing to work with authorities to pursue a “zero import” tax on aviation.

U.S. trade wars ratcheted up again this week with the threat of 50% tariffs on products from Brazil beginning in August, once again thrusting a key aviation market into uncertainty. Brazil has responded with plans to impose similar tariffs on U.S. products just as the country prepares to host the Latin American Business Aviation Conference and Exhibition early next month.

The threat came as the U.S. has continued to shift on tariffs globally, threatening and then postponing various tariffs as it negotiates various trade and other concerns. With Brazil, the U.S. cited a list of grievances—including claims around the Jair Bolsonaro trial, censorship of U.S. social media platforms, and long-standing lack of progress over trade negotiations—for its latest plans. That followed tariffs announced on Japan (24%) and South Korea (25%).

Aircraft and engines have been excluded from tariffs in trade with Canada and Mexico under an agreement negotiated during the first Trump administration, and more recently, similarly with the UK. U.S. Transportation Secretary Sean Duffy hinted at flexibility surrounding aerospace products last month at the Paris Air Show. But the White House has not yet announced plans to cordon off aerospace from tariffs despite the 1979 Agreement on Trade in Civil Aircraft that had established a global free-trade environment.

Analyst Jefferies looked at the potential impact of the Brazilian tariffs on manufacturer Embraer, noting that 50% of its commercial aircraft backlog involves U.S. customers. For the airframer’s executive jets, the situation is a little less clear since its Phenom light jets are assembled in the U.S. and its midsize Praetors are completed there. Jefferies noted, however, that tariffs affecting the price of Praetors could have a positive impact on Textron Aviation jets.

Meanwhile, Rolland Vincent Associates (RVA), which plans to publish a research report shortly on tariffs, noted that its JetNet iQ survey revealed that nearly 60% of business jet buyers already are factoring in the potential levies in decisions on whether to delay purchases.

RVA notes that foreign investment has enhanced the U.S. aerospace industry, which enjoyed a 6:1 trade value surplus on civil aircraft last year. The analyst points to a Pilatus presence in Colorado, Embraer’s in Florida, and Dassault Aviation in Arkansas as examples.