Industry Concerns Continue as U.S.–China Trade War Threatens Domestic Drone Supply Chains

Trade war expected to have big impacts on domestic drone industry

By DRONELIFE Features Editor Jim Magill

Experts warn that while the international trade war launched by the Trump administration might benefit the U.S. drone manufacturing industry in the long term, it is expected to bring pain to the industry in the near term, in the forms of difficulty in accessing parts and materials and in increased prices for consumers.

Earlier this month President Donald Trump imposed a series of steep tariffs, increasing taxes on the importation of nearly all goods coming into the United States. The tariffs were especially hard on China, with the baseline tariffs on all Chinese imports ratchetted up to 145%. As of this writing, Trump said he would probably lower that rate, while still maintaining hefty tariffs on Chinese products.

China, whose exports account for the majority of finished drones and components into the U.S. market, retaliated by imposing a minimum 125% tariff on exports to the U.S. In addition, China placed severe restrictions on the exports of rare earths minerals as well as rare earth magnets, critical to the manufacture of drones and other high-tech industries such as aerospace and electric vehicles.

In an interview, Adrian Doko, CEO of Imperial Aerial, said although the tariff regime would likely lead to higher prices for U.S.-manufactured drones in the short term, it would ultimately result in a stronger domestic drone industry within several years.

“There’s definitely going to be a short-term impact as far as situating our businesses with access to components, et cetera, but I think long-term we will be able to navigate it,” said Doko, who also serves as a lead on the FAA Safety Team.

He said he believes that the Trump administration is using the excessive tariffs on Chinese-made goods as bargaining chips to leverage concessions from China and other U.S. trading partners.

“But in the short term we don’t have access to a lot of the components and platforms that we had even a couple of months ago, because they don’t know what the outlook is going to be for the next three months, three years,” he said. “So as a service provider, we are noticing limited access to drones, sensors and batteries especially.”

Doko said the domestic industry is likely to be particularly hard-pressed in sourcing batteries for its drones, “and there’s going to be a lot more pain in the near future when it comes to sourcing components.” He estimated that if current tariffs are maintained at their current rates, supply shortage are likely to be become acute within six months.

“There’s a sense of urgency to come to the table and have a discussion on future trading relationships,” he said.

Tariffs forcing changes on U.S. industry

Several experts in international trade and relations said it is imperative for the U.S. to begin to forge new supply chains that are not so heavily dependent on China for critical raw materials and components that go into the manufacture of drones and other high-tech industries.

“The current U.S. trade policy, especially the imposition of steep tariffs on Chinese goods, “is having a profound and mixed impact on the domestic drone industry,” Sunny Cheung, a fellow for the China Studies Program at The Jamestown Foundation, said in an emailed response to DroneLife’s questions.

“On one hand, it sends a strong signal to reduce reliance on Chinese supply chains and encourages reshoring efforts. On the other, it creates real short-term challenges for manufacturers, government agencies, and even allies abroad who depend on affordable, accessible drone technology.”

However, Cheung warned that efforts to create new supply chains and “reshore” manufacturing capability to the U.S. would take a great deal of time and money.

“Reshoring is not a quick fix,” he said. “Sourcing alternative drone components from friendly countries like Japan, South Korea or the EU will take time and coordination.”

Cheung said the increased tariffs would raise prices for both Chinese drones and for domestic ones that depend on foreign parts. “Agencies and consumers will feel that pain. But in the bigger picture, the goal has to be creating a more resilient, secure supply chain,” he said. “At the end of the day, we do need to boost domestic capabilities offering subsidies and policies to the industry —in addition to tariffs — to ensure America owns a more effective and sustainable supply chain.”

Scott Shtofman, associate vice president of the Association for Uncrewed Vehicle Systems International (AUVSI), said that over the last year or two the U.S. drone industry has been preparing for the potential loss of access to China as a large supply chain partner, whether as a result of increase tariffs or legislative actions aimed at limiting the use of Chinese-made drones.

He added that some market players are further along than others in developing alternative supply chains for critical components, such as motors, batteries, camera and sensors, and flight controllers.

Jacqueline Deal, who leads a defense research firm in Washington, D.C., said the near-term price effects of the tariffs would depend on how quickly U.S. drone producers could find other options to manage supply constraints — from accessing existing stockpiles to finding substitutions and recycling.

“Over the long term, liberating U.S. consumers from dependence on a hostile foreign adversary will be helpful for access, dependability, innovation, and prices,” she said.

Rare earths a critical component for drone industry

One aspect of the U.S./China trade war that’s expected to have an immediate impact on the U.S. drone industry is China’s move to severely curtail the export of rare earth minerals and the magnets produced from them. On April 4, China, which produces the bulk of the world’s rare earth minerals, announced it would restrict the export of six heavy rare earths.

In addition, China, which produces 90% of rare-earth magnets, said it would restrict their export as well. These magnets are commonly used in high-tech industries, including the production of drones and robotics, aerospace, weapons systems and the automotive industry.

Despite the name, rare earth minerals are not really that rare. They are found in a number of countries around the world, including in the United States. However, because their production is expensive and environmentally destructive, over the past several decades most countries have allowed their own production of the minerals to languish, virtually ceding the entire market to China.

“A lot of us are concerned about the limited rare earth minerals that we produce today,” Doko said. “But long term I think there’s going to be an opportunity, especially for our legislative leaders, to start focusing on how we could diversify our portfolio whether it’s for rare earth minerals, components, sensors.”

Cheung said that building domestic capacity for rare earth mining would require loosening environmental regulations, major private-sector investments and years of development.

However, Deal said the U.S. potentially could ramp up its production of rare earth minerals fairly quickly.  “Domestic production of rare earth minerals is not rocket science, and even if it were, we should be up to the task,” she said.

The U.S. will likely have to relax some environmental regulations to streamline permitting for rare earth projects, she acknowledged.

Likewise, Deal believes that the U.S. could quickly increase its ability to manufacture the products that use the rare earth raw materials, components that drive most of America’s high-tech industries.“It took Tesla about a year to build its Gigafactory in Texas. That seems like a benchmark to aim for and beat,” she said.

Read more:

• China’s Rare Earth Export Restrictions: What They Mean for the U.S. Drone Industry
• How U.S.-China Tariffs Could Reshape the Drone Industry (It’s Not What You Think)
• China Expands Export Controls on US Defense Companies

Jim Magill is a Houston-based writer with almost a quarter-century of experience covering technical and economic developments in the oil and gas industry. After retiring in December 2019 as a senior editor with S&P Global Platts, Jim began writing about emerging technologies, such as artificial intelligence, robots and drones, and the ways in which they’re contributing to our society. In addition to DroneLife, Jim is a contributor to Forbes.com and his work has appeared in the Houston Chronicle, U.S. News & World Report, and Unmanned Systems, a publication of the Association for Unmanned Vehicle Systems International.