Impact of tariff policies on steel Under Trump’s second term
The re-election of Donald Trump has brought renewed focus to the US steel industry, particularly regarding the potential impact of expanded tariffs. His administration’s proposed policies, including a significant 60% tariff on steel imports from China and increased scrutiny on trade with Canada and Mexico, are poised to reshape the industry in ways reminiscent of his first term while introducing new complexities.
Lessons from the First Term
During Trump’s initial tenure, the imposition of Section 232 tariffs—25% on steel and 10% on aluminium—was designed to bolster domestic manufacturing by curbing imports. The measure initially drove up US steel prices, benefiting domestic producers by improving profit margins and capacity utilisation. However, the policy faced criticism for raising input costs for industries reliant on steel, such as automotive and construction, and for fuelling trade tensions with key partners like Canada, Mexico, and the European Union.
Despite these challenges, domestic steelmakers achieved higher margins. For example, the average margin for hot-rolled coil steel production increased by $250/t post-2018 compared to the preceding five years. However, high capacity utilisation was hardly sustained, highlighting the limitations of tariffs in addressing structural inefficiencies.
Emerging Policies and Industry Implications
Trump’s 2024 campaign rhetoric included promises to expand tariffs, specifically targeting downstream steel products and intermediaries to counter alleged duty evasion practices. The administration has hinted at reviving tariffs on imports from USMCA partners if evidence of transhipment or circumvention of existing duties arises. Additionally, measures like “foreign pollution tariffs” could penalise high-emission steel imports, aligning with environmental goals while supporting domestic producers.
For manufacturers, expanded tariffs present a double-edged sword. On the one hand, reduced competition from cheaper imports could allow US firms to gain market share and recover higher steel costs through increased pricing power. On the other hand, retaliatory tariffs on trade partners, such as Mexico’s recent threats, risk disrupting integrated supply chains critical to sectors like automotive manufacturing.
Broader Economic Impact
Higher steel prices, fuelled by tariffs, are likely to exacerbate inflationary pressures. With the US economy already navigating elevated costs for goods and services, further price hikes in steel-dependent industries could suppress consumer demand. Moreover, uncertainties surrounding international supply chains and potential retaliatory measures could stifle investment and hinder economic recovery efforts.