In a move that has once again stirred up controversy, President Donald Trump is targeting foreign steel, foreign aluminum, and Canada with new tariffs. On Wednesday, Trump announced a 25% tax on all steel and aluminum imports, with the possibility of increasing the levy to 50% if the metals come from Canada. However, the White House later retracted this threat following Ontario’s suspension of its retaliatory measures.
The impact of these tariffs won’t be limited to foreign steel and aluminum producers. American companies, including automakers, construction firms, and beverage manufacturers, are expected to face higher costs due to the tariffs. Economists warn that such unilateral tariffs could lead to price increases, job losses, and strained alliances.
This latest escalation in trade tensions mirrors Trump’s actions from his first term, when he imposed tariffs on foreign steel and aluminum in an effort to protect the American steel industry. While these tariffs initially affected American allies like Canada, Mexico, Japan, and South Korea, some trading partners were eventually granted exemptions or import quotas.
In contrast to the previous administration’s approach, Trump is now eliminating exemptions and raising the tariff on aluminum to 25%. Despite the temporary threat of 50% tariffs on Canadian metals, the situation de-escalated after Ontario suspended its surcharge on electricity sold to the U.S.
While the first round of tariffs benefited American steel and aluminum producers, economists argue that the costs imposed on downstream manufacturers outweighed these gains. With the potential for more trade conflicts on the horizon, the impact on American industries remains uncertain.
In 2021, the production of companies utilizing steel and aluminum decreased by nearly $3.5 billion due to tariffs, which offset the $2.3 billion increase in production by aluminum producers and steelmakers that year, as reported by the U.S. International Trade Commission in 2023. Christine McDaniel, a research fellow at George Mason University’s Mercatus Center, noted that there is an expectation of similar economic outcomes, with modest gains for U.S. steel and aluminum producers and employees but more significant losses for the broader U.S. manufacturing sector.
While the impact of the metals tariffs on the vast $30 trillion U.S. economy is expected to be limited, the imposition of tariffs on all Chinese imports and upcoming tariffs on Canadian and Mexican products by President Trump presents a broader challenge. The unpredictability and broad scope of Trump’s tariff agenda have the potential to reignite inflation and hinder growth by deterring corporate investments until trade tensions subside. The U.S. Chamber of Commerce’s Senior Vice President, John Murphy, highlighted the potential hesitancy among executives to expand operations amidst the ongoing trade uncertainties.
Following the tariffs, U.S. steelmakers have raised prices to compensate for lost imports, placing American companies utilizing domestic steel at a competitive disadvantage. In contrast, the U.S. aluminum industry faces unique challenges, with only a few operational smelters whose expansion would necessitate considerable resources, according to S&P Global.
Furthermore, Trump’s steel and aluminum tariffs are likely to provoke retaliatory measures, with Canada expected to announce its response. Critics argue that the tariffs may be misdirected, as China is often identified as the primary source of global steel market disruption due to overproduction and subsidies. However, the United States already employs trade restrictions to minimize Chinese steel imports, with China accounting for less than 2% of U.S. steel imports last year, according to the American Iron and Steel Institute.
As a result of these trade actions, companies reliant on steel are already experiencing the adverse effects. For instance, Steelport Knife Co. in Portland, Oregon, which uses American steel in its culinary and professional knives, faced increased prices from its U.S. steel supplier in anticipation of the tariffs.
The CEO, Ron Khormaei, announced a 10% increase in Steelport’s prices, citing the advantage this gives to Japanese and German competitors. With only 12 employees, Khormaei stated that raising prices could lead to a loss of business for the small company. To mitigate this, he is focused on reducing costs by managing inventories tightly and limiting travel to trade shows. Additionally, Khormaei mentioned facing backlash from Canadian customers, noting that one customer recently canceled an order via email, expressing appreciation for the product but stating they would not be making a purchase.
