US Defense Manufacturers: Tariff Impact Muted by Largely Domestic Supply and Limited Exports

President Donald Trump imposed new tariffs on imports from US global trading partners with the stated intention of boosting domestic manufacturing. Defense firms are among the US’ most domestically based manufacturers, and their exports are to countries with new tariffs at the low end of the range.

Key stats: We expect exports by US producers will probably become subject to retaliatory tariffs in the near future, but among industrial firms, US defense manufacturers source the vast majority of their inputs domestically, they have low revenue exposure to exports, and their destinations were among the least affected by the new tariffs.

• In 2024, Lockheed Martin LMT booked 26% of its $71 billion in sales to non-US customers, followed by General Dynamics GD with 16.7% (including Gulfstream), Northrop Grumman NOC with 12.2%, L3Harris LHX with 8%, and Huntington Ingalls HII with none reported.
• The countries with the greatest share of US foreign military sales in order of their new tariff rates are Taiwan at 32%, South Korea at 25%, Japan at 24%, European NATO members at 20%, and Australia at 10%. We suspect foreign military sales may end up with reduced or exempted tariffs.

The bottom line: We haven’t altered our forecasts or fair value estimates for the defense-focused manufacturers on our coverage list as a result of the tariffs announced April 2.

• These wide-moat companies trade 10%-15% below our fair value estimates, and their shares were among the least affected by market selling in early trading on April 3.