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Trump’s Tariff Turmoil: Aviation’s New Battleground

From consumer electronics to industrial equipment, supply chains worldwide are in turmoil. Ports are backed up, warehouses are overflowing, and businesses are scrambling. The culprit? A chaotic and unpredictable U.S. tariff policy has sent shockwaves through key industries—including aviation.

Airlines and manufacturers operate on years-long planning cycles, ordering aircraft and engines well in advance. But shifting trade policies and escalating costs are wreaking havoc on an already fragile supply chain, exacerbating parts shortages and labour constraints. At the centre of this turbulence are industry titans Boeing and Airbus, both of which now face an unpredictable pricing landscape and potential delivery delays.

Uncertainty at the Helm: Tariff Policy and Economic Fallout

Markets are on edge as Trump’s tariff strategy swings wildly. While the White House has temporarily postponed duties on imports from 75 countries, tariffs on Chinese goods have soared to 145%. Meanwhile, a 25% levy on steel and aluminium from Canada and Mexico—along with auto import duties—remains in place.

This volatility is already hitting global markets. When tariffs took effect on April 9, stocks plummeted, only to rally briefly before erasing gains by week’s end. The broader economic outlook isn’t faring much better. The OECD slashed its 2025 global growth forecast from 3.3% to 3.1%, with a further downgrade to 3% in 2026. China, a crucial player in the global economy, is expected to see its growth slow to 4.8% this year and 4.4% by 2026.

Inflation is another looming threat. Across G20 economies, overall inflation is projected to dip from 3.8% in 2025 to 3.2% in 2026, but core inflation will likely remain stubbornly above central bank targets, forcing prolonged high interest rates. The OECD warns that escalating trade tensions will curb business investment, further tightening financial conditions.

Aviation Takes A Direct Hit

Washington’s tariff battle isn’t just economic posturing—it’s poised to reshape global aviation. U.S. levies on Canadian and Mexican aluminium, steel, and auto imports triggered swift retaliation. Canada has imposed its own 25% tariffs on U.S. imports, including aircraft components.

For aviation, this is a costly dilemma. Airbus, headquartered in France but with final assembly lines in Canada, produces the A220—a critical aircraft for carriers like Delta, Air France, and JetBlue. With Airbus targeting 840 aircraft deliveries in 2025, the cost of production is set to rise.

Airlines will be forced to absorb these escalating expenses, leading to higher aircraft prices, potential delivery delays, and operational disruptions. Carriers that placed record-breaking orders in 2023—including Ryanair and Turkish Airlines—could face slowed rollouts, impacting fleet expansion plans. The consumer fallout will be unavoidable: rising ticket prices, fewer promotional fares, and even route reductions as airlines navigate shrinking margins.

Trump’s tariffs have turned the aviation industry into collateral damage in a high-stakes trade war. As uncertainty grips the sector, the only certainty is that travellers and airlines alike will pay the price.

AI Spending Is Complicating The Fed’s Fight Against Inflation

Silicon Valley leaders have long argued that artificial intelligence will make technology and services dramatically cheaper. OpenAI CEO Sam Altman has described a future where intelligence becomes extremely inexpensive, while Tesla and SpaceX CEO Elon Musk has predicted that AI and robotics will create greater abundance and drive down costs.

So far, those benefits have yet to materialise at scale. AI adoption remains relatively slow, while the enormous investment needed for data centres and AI infrastructure is putting pressure on electricity prices, supply chains and other costs. For the Federal Reserve, this creates a difficult balancing act: AI could eventually boost productivity and reduce inflation, but its current buildout is contributing to higher prices.

OpenAI chief economist Ronnie Chatterji said AI needs to be adopted by organisations and generate measurable value before its broader economic impact becomes visible in productivity statistics.

AI Adoption Remains Uneven

Capital spending on AI infrastructure in the U.S. is expected to reach $581 billion this year, according to Goldman Sachs Research, with global investment potentially reaching $1 trillion.

Despite the scale of spending, adoption remains far from universal. A May survey by the U.S. Census Bureau found that 17% to 20% of U.S. businesses reported using AI, with adoption significantly higher among large companies.

Companies that have implemented AI at scale also highlight the challenges. Julie Averill, former CIO of Lululemon, said successful deployment requires changes in employee behaviour and trust in the technology. OpenAI has observed a similar divide: its most advanced business users deploy AI at around eight times the rate of average companies.

Why Productivity Gains May Take Time

Economists point to the limits of automation. AI can perform individual tasks effectively, but many jobs combine tasks that are difficult to automate.

Stanford professor Charles Jones refers to these as “weak links”. Radiology, for example, involves interpreting scans but also communicating with patients and working with colleagues. AI can automate part of the job without eliminating the profession itself.

As a result, the full economic impact of AI may not become clear until businesses adopt the technology more broadly and reorganise their operations around it.

AI Adds To The Fed’s Policy Challenge

AI’s economic impact has become part of the Federal Reserve’s policy debate. Fed Chairman Kevin Warsh has argued that AI could eventually become a significant disinflationary force by increasing productivity and strengthening U.S. competitiveness.

Other officials are more cautious. In July, the Fed kept interest rates at 3.5% to 3.75%, while some officials expressed concern that AI infrastructure spending could add to inflationary pressures.

Minneapolis Fed President Neel Kashkari pointed to massive data-centre investment as a new source of demand. Household electricity prices rose 10% in the two years through July, compared with a 6.2% increase in overall consumer prices. Meanwhile, shortages of chips and other AI components are pushing up costs. JPMorgan Chase estimates that DRAM prices could rise 400% by the end of 2026 compared with 2024.

Warsh has consequently adopted a more cautious tone, saying that while AI investment is laying the groundwork for future growth, the timing and scale of its economic effects remain difficult to predict.

For the Fed, the challenge is clear: AI could eventually deliver major productivity gains, but the cost of building that future is already showing up in the economy.

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