President Donald Trump followed through on the next phase of his trade agenda. In front of reporters at the Oval Office, the president signed proclamations imposing 25% tariffs on all steel and aluminum imports. “This is a big deal — making America rich again,” Trump stated. So, is the latest executive action the steel deal for the US economy or simply another negotiation tactic from the new administration to achieve one of Trump’s endgames?
A Look at the Tariffs
Trump gave the world a heads-up while traveling to the Super Bowl. He told the press that he would announce new levies on all steel and aluminum entering the United States. It was déjà vu all over again for the international financial markets, so investors were not too frightened. Still, traders waited all day for the official declaration, thinking perhaps that Trump would tergiversate as he did on Canada and Mexico in the previous week.
Trump was as good as his word. While a few hours late to his desk, the president signed trade proclamations to impose 25% tariffs on steel and aluminum imports, effective March 4. These levies will affect all exporters of the two metals without any exemptions or exclusions. Commerce Department data indicate that several nations will be more harmed than others: Canada (6 million tons), Brazil (4.1 million), Mexico (3.2 million), South Korea (2.5 million), Vietnam (1.2 million), and Japan (1.1 million).
Unsurprisingly, Canadian officials were perturbed throughout the day. Ontario Premier Doug Ford accused Trump of "shifting goalposts" and creating "constant chaos." Quebec Premier Francois Legault urged Ottawa to start renegotiating the USMCA "as soon as possible" to "put an end to this uncertainty." Industry Minister François-Philippe Champagne vowed to "stand up for Canada."
Last week, the president agreed to a 30-day pause of 25% tariffs on goods coming from Canada and Mexico so they can institute their border plans. Ottawa will have a new fentanyl czar and will work with the US government in a joint strike force to fight organized crime. Mexico sent 10,000 troops to the border.
US steelmakers were ecstatic over the news because they would be shielded from external factors, such as foreign markets flooding the world stage with cheap, subsidized metals or domestic businesses not having to compete with outsiders. Indeed, Trump reiterated that companies could avoid these tariffs if they produce steel and aluminum in his home country. "It's going to mean a lot of businesses are going to be opening in the United States now," Trump said.
Reciprocity Is Next
There is more where that came from! During his intimate meeting with the press, Trump further revealed that he intends to announce reciprocal tariffs in the coming days. While it is unclear if these measures would replace the campaign pledge to install universal tariffs, the president emphasized that reciprocal will be a word often used in the public realm.
"If they charge us, we charge them,” he said. “If they're at 25, we're at 25. If they're at 10, we're at 10. And if they're much higher than 25, that's what we are, too. So that's having to do with everything, not just steel and aluminum."
In addition to being used as a method to bolster national security or punish evildoers, White House officials, whether Treasury Secretary Scott Bessent or Commerce Secretary Howard Lutnick, want to fire off tools to level the playing field and rectify unfair trade practices in global markets. For example, a commonly cited fact is that Europe tariffs US automobiles at 10%. By comparison, the United States maintains a 2.5% tariff on European car imports.
Will These Tariffs Work?
At first glance, it would appear that universal tariffs on all steel and aluminum products entering the United States would be a win-win scenario for the country. Since companies will seek cheaper alternatives, the only market to avoid a 25% tax now is the United States, meaning that businesses will look internally to satisfy their appetites for aluminum and steel. However, a deeper dive into what happened during the president’s first stint in Washington showed mixed results.
A March 2023 International Trade Commission study determined that the Trump administration's implementation of Section 232 boosted steel and aluminum prices. Industries protected by the tariffs registered a $2.8 billion production increase, but downstream industries reported a $3.4 billion production decrease amid higher input costs. An analysis by the Tax Foundation concluded that the Trump and Biden administrations' imposing levies on certain steel and aluminum imports trimmed GDP by 0.2% and eliminated 142,000 full-time jobs. At the same time, these levies generated more than $13 billion in tariff revenues.
Remember, Trump 1.0 tariffs did not increase inflation in the aggregate, and it is unlikely that Trump 2.0 levies will lead to the price pressures economists are forecasting. However, advocating that tariffs will not lead to any unintended consequences might be as absurd as old politicians with bifocals and canes struggling to chant “we will win” on the footsteps of Capitol Hill.
