The story unfolding in the U.S. is reminiscent of a scene we’ve watched before: President Trump, once again, has levied hefty tariffs on imported steel and aluminum. The move mirrors his actions from 2018, so domestic industries somewhat anticipate the ripple effects that might follow.
Manufacturers, from automotive to appliances and construction equipment, are now in a scramble to secure American sources for their metal needs. This rush keeps U.S. steel and aluminum producers busier than before. However, companies accustomed to relying on specific alloys unavailable domestically face higher costs, leading to increased prices for end products.
But the narrative could take unexpected turns. Will Trump strike deals with certain countries to allow duty-free imports? Might he establish exemptions for companies proving undue hardship? Despite a White House official stating no exclusions will be granted, these uncertainties keep steel users on edge as the March 12 tariff implementation date looms. Angela Holt, who manages a precision machining firm and chairs the Indiana Manufacturers Association board, describes the situation as “complex” for businesses.
“It’s not just about the price; it’s also availability that varies,” Holt notes. “The impact differs greatly across industries, depending on where companies source their materials and what the competitive landscape is like.”
Reflecting on past lessons, we see that although American steel and aluminum industries don’t hold the same strength they did in the 1970s, U.S. firms have reduced their reliance on foreign steel, importing only around 26% of what they use, as per the International Trade Administration. Meanwhile, U.S. steel producers utilize only about 70% of their capacity, leaving room for growth if domestic demand surges. However, underpriced Chinese exports have forced the closure of many outdated mills and limited the operations of others.
Moreover, economists from Columbia University, Princeton, and the Federal Reserve Bank of New York found that half of the 2018 tariffs on steel were actually absorbed by foreign exporters, who reduced prices to retain access to the U.S. market.
Yet, this doesn’t completely shield consumers from price hikes. A 2023 report from the U.S. International Trade Commission indicated that those tariffs did bump steel and aluminum prices up by 2.4% and 1.6%, respectively. This anticipation saw stocks of U.S. processors like Nucor and Steel Dynamics rise following the new tariff announcement.
“The key takeaway is the broader impact on downstream industries,” observes Alex Durante, a senior economist at the Tax Foundation. “The negative effects overshadow any temporary gains for steel and aluminum producers.”
This time, the stakes might be even higher for metal users. With U.S. manufacturing grappling with high interest rates and a strong dollar that stifles export competitiveness, the existing low unemployment coupled with restricted immigration could escalate labor costs. Furthermore, steel and aluminum prices, already elevated due to the COVID-19 pandemic, haven’t yet normalized.
Hence, added tariffs could exacerbate tensions, particularly if layered atop comprehensive tariffs on Canadian goods, which Trump suggests could begin as early as March 1.
“It just compounds issues already pressing on a strained macroeconomic climate,” says Chad Bown, a senior fellow at the Peterson Institute for International Economics.
Examining impacted industries, one can discern which sectors might bear the brunt of new tariffs by assessing their reliance on steel and aluminum.
The International Trade Commission’s analysis of the 2018 tariffs highlights the automobile sector’s dependence on these metals, with motor vehicle metal stamping topping at 58%. While much of the steel for automobiles is sourced domestically, specialized alloys still come from abroad, affecting manufacturers like Tesla, which in 2023 sought a tariff exemption for its stainless steel-bodied Cybertruck, contributing to a 3% drop in Tesla’s stock.
Automakers already battling intensified competition from Chinese rivals and the substantial investment in electric vehicle development face further challenges. Tariffs on Mexican and Canadian goods might dent some manufacturers’ credit ratings, as per Fitch Ratings.
Next in line is the construction sector. Commercial and residential projects heavily depend on steel reinforcement bars, meaning development costs could surge. Carl Harris, leading the National Association of Home Builders, critiques Trump’s tariffs, underscoring that they contradict efforts to make housing more affordable by inflating construction costs and hindering redevelopment after natural disasters, ultimately burdening consumers with higher home prices.
The brewing and soft drink industries, heavy users of aluminum, already felt the pinch in 2018 with a $500 million increase in production costs due to tariffs.
Impact on other sectors remains uncertain. Boeing, for instance, faces potential challenges with higher aluminum costs, further complicating an already delayed jet delivery schedule. However, the company previously indicated that the 2018 tariffs had limited effects on their operations, as they primarily source aluminum domestically and stabilize costs through strategic agreements.
Even federal projects involving heavy metals—like railroads and bridges—might see cost escalations, although they already use domestic materials. Tariffs could further inflate prices across various energy sectors, both fossil-based and renewable, affecting everything from drilling equipment to wind turbine towers. While energy companies could opt for foreign alternatives, doing so would undercut the Biden administration’s initiatives promoting locally produced renewable energy parts, which have spurred modest industrial growth.
In this intricate landscape, the ripple effects of tariffs extend far and wide, with every sector eyeing the developments cautiously, bracing for whatever twists the economic narrative may bring.
Jack Ewing, Niraj Chokshi, and Rebecca Elliott contributed to the reporting, while Susan C. Beachy assisted with research.
