Raytheon CEO says allies will keep buying US defense systems despite trade disputes

Key Points
  • Raytheon CEO Thomas Kennedy is confident that foreign markets will continue to procure U.S. defense systems despite trade disputes.
  • Raytheon is the third-largest U.S. defense company and the world's top manufacturer of guided missiles.
  • Analysts have echoed concerns that U.S. defense contracts with allied partners might get caught in the crosshairs of tit-for-tat tariffs.
Raytheon CEO: Trump effect is real for defense spending

In the wake of President Donald Trump's move to impose steel and aluminum tariffs, Raytheon's CEO said Wednesday that the defense company is largely isolated from the trade disputes.

"In terms of steel tariffs and aluminum tariffs, most of the steel and aluminum products that we buy are from U.S. companies so we are not impacted by that," Raytheon Chief Executive Thomas Kennedy told CNBC's Morgan Brennan in an exclusive interview.

Raytheon, the third-largest U.S. defense company, behind Lockheed Martin and Boeing, is the world's top manufacturer of guided missiles and a leader in missile defense systems.

"We do not sell any products to China so we are not impacted by any of these tariff issues," Kennedy said in reference to the tit-for-tat tariffs between the world's two largest economies.

Last week, the Office of the U.S. Trade Representative released a list of 1,102 Chinese imports worth about $50 billion that are targeted for tariffs starting July 6. China responded with its own list of 545 U.S. imports worth roughly $34 billion that will be subject to a 25 percent tariff also beginning July 6.

On Tuesday, Trump directed the U.S. trade representative to identify $200 billion worth of Chinese goods for an additional 10 percent tariff. China's Commerce Ministry said that the U.S. "has initiated a trade war" and that Beijing will protect its interests.

And while the defense giant doesn't sell to China, Kennedy maintains that other countries will continue to buy U.S. defense systems despite trade disputes.

"It turns out that the reason why these countries are buying our products is to protect their sovereignty and the freedom of their citizens," Kennedy began.

"If you go to Europe, you'll find that all of these European nations are now increasing the percentage of GDP that they're putting into defense systems," he said, explaining that European nations are "concerned about Russia and what they did in Crimea."

"If you go to the Middle East, the big concern there is deterrence against Iran," Kennedy said adding that customers in the Asia-Pacific region are concerned with China and being able to protect their sovereignty."

Analysts, however, worry that future U.S. defense contracts with allied partners will indeed be caught in the crosshairs.

Remy Nathan, vice president for international affairs at the Aerospace Industries Association, told CNBC in a prior interview that "oftentimes trade is political and security cooperation is political and the two intertwine."

"When we are enjoying good trade relations with other countries we have positive foreign relations, positive security cooperation, and they are oftentimes more interested in purchasing U.S. defense equipment and working with our military," Nathan said. "The opposite is also true."

Similarly, Stephen Biddle, adjunct senior fellow for defense policy at the Council on Foreign Relations, argues the tariffs will undermine America's ability to leverage allies to support U.S. interests.

"The U.S. grand strategy for multiple generations has been premised on the idea that we are going to collaborate with rich and powerful allies that our enemy doesn't have and that this will advance American national security in a variety of ways," Biddle told CNBC. "The allies in question are precisely the ones that we are now engaged in these trade disputes with."