Trump Imposes New Tariffs on Foreign Steel and Aluminum

In a move reminiscent of his first term, President Donald Trump is once again imposing a 25% tax on foreign steel and aluminum. This decision aims to protect American production and increase prices for domestic producers.

When the original tariffs were introduced, they provided some relief for U.S. steel and aluminum manufacturers struggling against global competition. As a result, stocks for several companies surged; Nucor saw a rise of 5.6%, Cleveland-Cliffs increased by 17.9%, and Alcoa experienced a 2.2% uptick in shares on the announcement.

However, these tariffs come with several downsides, as evidenced in Trump's previous term. U.S. relations with key allies became strained, and the prices for businesses that rely on steel and aluminum to manufacture goods increased significantly.

Timothy Zimmerman, CEO of Mitchell Metal Products in Wisconsin, reflects on the challenges faced during the first round of tariffs. He recalls, "We were significantly impacted. The challenges we faced were unprecedented — rapid inflationary impacts from domestic steel producers. We saw steel prices rise within a few months about 70% over what they had been. Our suppliers simply broke contracts and gave us an option: take this or take nothing."

Mitchell Metal Products was tied to contracts with customers, limiting their ability to pass these cost increases along. As a result, profit margins sank, and the company lost ground to competitors in Europe that did not face the fallout from the tariffs.

Overall, the broader impact on the U.S. economy wasn't huge, primarily because steel and aluminum imports represent a small fraction of the nearly $30 trillion economy. Yet, economists worry that the new taxes could lead to increased inflation and could weigh on global economic growth this year, according to analysts from Capital Economics.

Effect on American Allies

These newly imposed tariffs will additionally affect U.S. allies. Canada remains the largest supplier of foreign steel and aluminum to the U.S., while Mexico ranks third in steel exports, with Japan and South Korea also providing significant amounts. China, often viewed as a significant player in global steel production, has been causing market pressures through overproduction, yet it accounted for less than 2% of U.S. steel imports last year.

When Trump first imposed the steel and aluminum tariffs nearly seven years ago, he utilized Section 232 of the Trade Expansion Act, which allows for tariffs based on national security concerns. This decision faced backlash, particularly from Canada and Mexico, leading to retaliatory tariffs on U.S. products.

Past Consequences of Tariffs

While the tariffs had positive effects for some U.S. steel producers by allowing price increases and prompting investments in new facilities, they also disadvantaged downstream businesses. According to a 2023 study by the U.S. International Trade Commission, production at these affected companies fell by nearly $3.5 billion in 2021 as a direct result of the tariffs, outpacing the $2.3 billion gain made by steel and aluminum producers.

Research from Harvard University found that the tariffs generated 1,000 jobs, but led to a loss of 75,000 jobs overall in other sectors. For Zimmerman, the payroll at Mitchell Metal Products which peaked at 102 employees was cut down to about 75 due to the first set of tariffs.

Gary Hufbauer from the Peterson Institute for International Economics warns that Trump's trade policies during his first term were financially detrimental to key sectors in American industry. “The net effect of all these tariffs — on China, aluminum, steel, plus retaliation — was to reduce U.S. manufacturing jobs,” he noted. He anticipates similar outcomes with the reintroduction of these tariffs.

While some earlier tariffs were eased or altered, Trump has now reinstated and increased the metal tariffs, removing previous exemptions and raising the aluminum tariff from 10% to 25%. Zimmerman is preparing for these changes, with some steel mills already announcing price hikes in anticipation of the tariffs. “It’s not a healthy place to be as a company,” he said, as he underscores the need to find ways to relieve some cost burdens for their customers.

Tariffs, Steel, Aluminum