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New tariffs announced by the US government on drone systems and their components have raised concerns about how Australian defence industry will be affected.
US President Donald J Trump announced the introduction of tariffs on drones and drone components as part of a new national security and US supply chain policy on 13 August this year.
The “Securing American Drone Dominance” policy imposes a 100 per cent ad valorem tariff on drones (with a maximum take-off weight of more than 25 kilograms and those with thermal imaging capabilities) that are particularly sensitive for national security purposes, docking stations of these drones, and certain critical components of these drones.
It also imposes a 25 per cent ad valorem tariff on certain drones that are smaller in size and lack certain capabilities that particularly implicate national security and on other drone components.
Another 15 per cent ad valorem tariff is placed on drones and components from the European Union, Japan, Liechtenstein, Republic of Korea, Switzerland and Taiwan. A 10 per cent ad valorem tariff is placed for drones from the United Kingdom, provided that substantially all hardware, software and technology originate from within these countries and the United States.
“President Trump’s drone tariff program will protect the national security of the United States and its defence and defence-adjacent industrial base, supporting and creating American jobs,” the new policy said.
“Drones are a key technology in modern armed conflict and critical for present and future US military operations. Drones used for both commercial and US military purposes rely on foreign sources for critical unmanned aircraft system components, which poses significant risks to US national security and creates cyber security vulnerabilities.
“US drone production needs to be expanded rapidly to ensure US national and economic security.”
Australia misses the list
The announcement has raised eyebrows in the Australian defence industry with Australia neither listed under the 100 per cent, 25 per cent, 15 or 10 per cent tariff ranges. The United Kingdom, another member of AUKUS alongside Australia and the US, was listed with a 10 per cent tariff.
Australian Prime Minister Anthony Albanese has reportedly already inquired about exemptions to tariffs on some Australian products from the US government.
“I informed him about our record when it comes to dealing with issues such as modern slavery, the strengthening that we have put forward as well, to look and hold companies accountable for the supply chain process as well,” Prime Minister Albanese reportedly said.
“I put the argument very much to the President, as a friend of the United States, we would request that to be considered.
“We have a different position when it comes to tariffs and, of course, our position as a government is that tariffs are an economic imposition and a cost on the countries that are imposing them.”
Location, location
Crucially, the new US policy also authorises the establishment of an onshoring program for companies making new investments in manufacturing drones and drone components.
Such a policy change could instead drive Australian companies and their IP to become more deeply integrated into the US defence ecosystem with those defence companies encouraged to move their manufacturing, research and development to America.
On the bottom line of financial benefit, an Australian defence drone company could theoretically bypass the new tariffs by establishing subsidiaries, joint ventures, assembly facilities or component manufacturing in the US. The new US tariff actively creates an incentive for successful Australian drone companies to take their manufacturing out of Australia and into the larger United States domestic and defence market.
CubePilot Global, a Victorian supplier of NDAA-compliant, open-source autopilot systems to several international customers.
The Australian government needs to catch up to the innovation and high quality of drones being manufactured in Australia, according to chief executive officer Philip Rowse.
Australia has immense impact in the drone manufacturing space and should be supported, he said.
Good with the bad
It’s not all doom and gloom with Australian drone manufacturers potentially able to benefit from the new tariffs as more attractive US supply chain partners supplying non-Chinese, trusted-origin components and systems.
The US and other allies following similar policy decisions may find themselves looking for trusted, non-Chinese supply chains and Australia has the opportunity to feed into those supply chains.
In addition, there is now more reason than ever for Australia to develop domestic manufacturing, not just of drones, but also of their components counter-drone and autonomous technology to access greater demand in the market.
Final thoughts
The new US tariffs on drones provide a clear and direct challenge to the Australian government and domestic defence industry that we are not immune to US President Trump’s campaign to lead commercial best interests of America.
Australia must decide what we value more – sovereign capability or AUKUS partnership?
There is no win-win for all in this situation – an Australian company exporting a covered large or sensitive UAS to the US could face the 100 per cent additional tariff and the AUKUS trilateral agreement provides no preferential tariff treatment for exporting Australian drones into the US market.
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