Why US factories are likely to get hurt from Trump's steel and aluminium tariffs

United States President Donald Trump is once again taking aim at three of his biggest grievances: foreign steel, foreign aluminium, and Canada.

Trump imposed a 25 per cent tariff on all steel and aluminium imports on Wednesday. A day earlier, he announced plans to double the tariff to 50 per cent for Canadian imports — only for the White House to backtrack by the afternoon after Ontario halted its own retaliatory measures.

The impact won’t be limited to foreign producers. The tariffs are expected to raise costs for American businesses reliant on these metals, including automakers, construction firms, and beverage companies. Concerns over economic fallout have unsettled stock markets.

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“Unilateral tariffs will raise prices, cost American jobs, and strain alliances,” Philip Luck and Evan Brown of the Center for Strategic and International Studies wrote in a report last month.

Echo of Trump’s first term tariffs

The latest tariffs are an amped-up replay from Trump’s first term.

In 2018, in an effort to protect American steelmakers from foreign competition, he imposed tariffs of 25 per cent on foreign steel and 10 per cent on aluminium, using a 1962 trade law to declare them a threat to US national security.

The tariffs landed most heavily on American allies: Canada is the No. 1 supplier of foreign steel and accounts for more than half of aluminium exports to the United States. Mexico, Japan and South Korea are also major steel exporters to the US.

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The president insists that steel imports are a threat to the very existence of the United States. “If we don’t have, as an example, steel, and lots of other things, we don’t have a military and frankly we won’t have — we just won’t have a country very long,” Trump said last week in his joint address to Congress.

His 2018 sanctions were gradually watered down.

Trump spared Canada and Mexico after they agreed to his demand for a revamped North American trade deal in 2020. For some US trading partners, the tariffs were supplanted by import quotas. And the first Trump administration also allowed American companies to request exemptions from the tariffs if, for instance, they couldn’t find the steel they needed from domestic US producers.

This time, Trump is closing those loopholes and raising the levy on aluminium to 25 per cent.

He’s shown a willingness to go higher — as the apparently short-lived 50 per cent tariffs on Canadian steel and aluminium suggest.

Trump was originally punching back at the government of Ontario for imposing a 25 per cent surcharge on electricity sold to the United States, a move that was itself a response to Trump’s tariff threats. After Trump said he’d hit the Canadians with a 50 per cent metals tax, Ontario suspended its planned electricity surcharge. In response, White House trade adviser Peter Navarro said the US would pull back on doubling the tariffs on Canadian steel and aluminium.

Will it be more of the same?

Trump’s first-term steel and aluminium tariffs benefited American producers of the two metals, encouraging them to increase production. But the beneficiaries were relatively few: The US steel industry, for instance, employs fewer than 150,000 people. Walmart alone has 1.6 million employees in the United States.

Moreover, economists have found, the gains to the steel and aluminium industries were more than offset by the cost they imposed on “downstream’’ manufacturers that use steel and aluminium. In 2021, production at such companies dropped by nearly $3.5 billion because of the tariffs, cancelling out the $2.3 billion uptick in production that year by aluminium producers and steelmakers, the US International Trade Commission found in 2023.

This time, “there is no particular reason to think that the economics won’t be more of the same: small gains for the US steel and aluminium producers and employees, but larger overall losses for the rest of US manufacturing,’’ said Christine McDaniel, research fellow at George Mason University’s Mercatus Center.

Taken by themselves, the metals tariffs are unlikely to do much damage to the nearly $30 trillion US economy. “Steel and aluminium – they’re just a drop in the ocean,’’ said Satyam Panday, chief US and Canada economist at S&P Global Ratings.

But Trump isn’t just hitting steel and aluminium. He’s slapped 20 per cent tariffs on all Chinese imports. He’s set to hammer all Canadian and Mexican products with 25 per cent taxes next month, while limiting the tariff on Canadian energy to 10 per cent – moves he has twice postponed with 30-day reprieves. And he has an ambitious and complicated plan to impose “reciprocal tariffs,’’ raising US import taxes to match those of countries that impose higher levies on American products.

The scope and unpredictability of Trump’s tariff agenda threatens to rekindle inflation and to slow growth by discouraging companies from making investments until the trade tensions have eased. “If you’re an executive in the board room, are you really going to tell your board it’s the time to expand that assembly line?” said John Murphy, senior vice president at the US Chamber of Commerce.

US steelmakers may raise prices

US steelmakers can step up production to offset lost imports. They can also raise prices – and have already started, putting US companies that use American steel at a disadvantage to competitors who get theirs elsewhere.

US steel was priced at $854 per metric ton as of Feb. 24, considerably higher than the average world export price of $488, according to Steel Benchmarker.

Aluminium is a different story. The United States has just four aluminium smelters and only two of them were fully operating last year. Increasing US smelter production would require “enough power for a small city,” S&P Global said in a report last week.

Trump’s steel and aluminium tariffs are also certain to draw retaliatory taxes. Canada’s are expected to be announced Wednesday.

Contending with angry Canadians

Critics say Trump’s metals tariffs are hitting the wrong target.

China is widely seen as a source of the world steel industry’s problems. Chinese overproduction, heavily subsidised by Beijing, has flooded the world with steel and kept prices low, hurting steelmakers in the United States and elsewhere.

But the US already uses trade barriers to keep out most Chinese steel. China accounted for less than 2 per cent of US steel imports last year, according to the American Iron and Steel Institute. “Instead of focusing on the real issue — China’s market-distorting policies — the United States risks entangling itself in tariff disputes with its closest allies,’’ wrote Luck and Brown at the Center for Strategic and International Studies.

Meanwhile, companies that use steel are already feeling the pain .

Steelport Knife Co. in Portland, Oregon, uses US steel in its knives for home cooks and professional chefs. Last month, its American steel supplier, anticipating Trump’s tariffs, raised its price by 10 per cent.

CEO Ron Khormaei says Steelport’s Japanese and German competitors are benefiting. “It’s cheaper for them,’’ he said. Khormaei says his small company — it has 12 employees — will lose business if it raises prices. So he’s doing everything he can to cut costs — keeping inventories tight, for example, and limiting travel to trade shows.

And he’s facing another problem. “Canadians are mad at us,’’ he said.

Khormaei said that one of his Canadian customers just cancelled an order by email: “Thank you. We love your product. We are not buying.’’

With inputs from AP