U.S. President Donald Trump’s doubling of tariffs on steel and aluminum from 25 percent to 50 percent officially went into effect on Wednesday. But experts say the tariffs will gum up Trump’s plans to rebuild American industry, complicate ongoing trade talks with overseas partners, and do nothing to tackle the structural problems that have plagued the steel industry globally for decades.
The tariffs do have the advantage, from Trump’s point of view, of not only favoring domestic industries but also doing so using a more defensible legal tariff authority than the one that courts struck down last week. It’s part of a likely pivot to tried-and-tested trade authorities, including the Section 232 authority from the Trade Expansion Act used on Wednesday for steel and aluminum, that give the White House wide leeway to levy trade restrictions with little oversight and less legal recourse.
The doubling of import taxes on metals and everything made from them is necessary, Trump said in an executive order, “so that such imports will not threaten to impair the national security” of the United States. He added: “The increased tariffs will more effectively counter foreign countries that continue to offload low-priced, excess steel and aluminum” into the U.S. market and finally get the country’s mills back in business.
But both of the rationales that Trump offered for the steep tariff hike are false: U.S. imports of steel actually fell over the past year, including after the first wave of Trump’s tariffs, and are not surging, and U.S. steel mills are working more now than they have been in recent years.
“Trump doesn’t make a lot of sense, but we learned that with Sec. 232 trade actions, he doesn’t have to,” said Scott Lincicome, an international trade lawyer at the Cato Institute.
Trump, like many presidents before him, has a special protectionist spot for the steel industry. That’s partly a reflection of decades-old nostalgia for a smokestack-powered economy that is increasingly irrelevant in a world of services and data, and partly because his first term was held captive to steel industry lawyers—most notably Robert Lighthizer, his first-term U.S. trade representative.
But as he underscored in the latest executive order, since his first term, Trump has viewed all matters of economic security—from steel mills to shipyards—as matters of national security. That is why there are also national security-related tariff investigations underway into such dire threats as Canadian lumber and Mexican car seats.
“It really just underscores how lawless Sec. 232 really is. They can say anything is a national security threat, and they can justify it with anything, and courts are very unlikely to challenge that determination,” Lincicome said.
The irony of Trump’s metals tariffs is that they address a problem that doesn’t exist, but they don’t address one that is crying out for a solution—namely, massive overcapacity of steel production in countries such as China and, soon, in India. Making matters worse is the fact that Trump’s new tariffs, like his lighter version earlier this year, target everything made from steel as well as imports of semifinished and finished steel goods. What the latest round of tax hikes do is simply raise prices for steel-using businesses, which were already paying more for steel than any rivals, whether in Europe or China.
“All the tariffs do is raise the domestic price of steel,” said Josh Spoores, the lead steel analyst at CRU Group, a metals and minerals consultancy.
U.S. prices for steel and aluminum have done nothing but soar since Trump made imports more expensive, which has negative impacts on the competitiveness of businesses small and large, whether they use girders, pipes, plate, nails, or tinfoil. Economists are still trying to quantify just how many tens of thousands of net job losses steel tariffs cost the broader economy.
While Trump’s ostensible goal with the tariffs is to bolster the steel industry and make U.S. manufacturing more competitive in sectors such as autos, shipyards, and other old-school industries, the reverse is true. The first pain will likely be felt in the oil patch, another of Trump’s favored sectors, but one that has already felt the pinch of his trade-war induced collapse in the price of crude, which makes drilling a dicey proposition.
About half the pipes and tubes and casings needed for the U.S. oil and gas industry are imported, Spoores noted. Oil country goods, as they are known, are consistently one of the biggest categories of U.S. steel imports. There is no magic switch to flip to produce those goods domestically, either using tariffs or otherwise: Steel is a must-have good that just got a lot more expensive. Or, as Spoores put it: “A lot of it can come down to the inelasticity, where demand happens regardless of price.”
The same is true for building ships and building cars, two other Trump priorities that, when done right, devour vast amounts of steel. The problem with shipbuilding is the lack of long-term contracts, whether for commercial ships or U.S. Navy vessels; a mercurial increase in tariff rates won’t automatically rejigger U.S. mills to produce the kind of steel that goes into supertankers.
“I don’t think tariffs alone would drive investments to build that kind of plate,” Spoores said.
Cars are similar: The steel used in autos is specialized and quality-tested, extensively so. That kind of multibillion-dollar investment is unlikely to turn on tariff decisions, which can—and have—been reversed in a tweet.
“The tariffs just make steel more expensive. It takes something like five years to get an auto-quality mill up and running,” Spoores said.
Meanwhile, Trump’s latest trade salvo landed in the middle of talks with scores or hundreds of potential trade partners, all of whom were horrified, and most of whom are recalibrating. Mexico and Canada, which have been hit with so many tariffs this year for so many reasons, are both trying to make sense of the escalation. Mexico is threatening reprisals, while Canada’s new government is cautious but ready to react.
The United Kingdom, which has agreed to a preliminary framework for future trade talks, is worried that the latest steel tariffs will throw a spanner in the bilateral truce, especially because a lot of British steelworks are actually Indian-owned. The European Union held off on reprisals after the first round of steel tariffs, and it is still hopeful about progress on talks but is dusting off billions in counter-battery tariff measures just to be sure.
What frets European negotiators—and steel industry experts in general—is that the industry’s problem is, to a large extent, Chinese overcapacity, which is entirely unaddressed by Trump’s latest measure. China produces more than a billion tons of steel a year, more than half the global total. The United States, still a major producer, churns out roughly 80 million tons.
In recent years, the United States and Europe had sought accommodation on steel production and rules on steel trade that would limit China’s reach and its environmental impact. But that, to the chagrin of European trade experts and U.S. environmentalists, takes a back seat to putting another brick in the wall.