Trump Steel Tariff Redux Spells Relief But Not Revival

Article content

(Bloomberg) — Supply Lines is a daily newsletter that tracks global trade. Sign up here.

Article content

Article content

While US President Donald Trump’s plan to impose 25% tariffs on steel and aluminum imports may be good news for investors, it’s unlikely to arrest decades of declining market share and stagnating production.

Shares of United States Steel Corp. and Cleveland-Cliffs Inc. jumped Monday after Trump signaled a return to the protectionist playbook he used in his first term. If past is prologue, the American steel sector is poised for another round of investment, swapping out old blast furnace capacity for more efficient electric furnaces. But since tariffs were placed on steel imports during the president’s first term, in 2018, output has still fallen.

Article content

“The tariffs back then helped give the industry more confidence to add new capacity,” Timna Tanners, an analyst for Wolfe Research, said in a phone interview. “If you believe you’re going to be protected, you have a belief you can add more capacity and make that profitable.”

The experience over the past eight years indicates the potential limits of Trump’s trade policies to shore up domestic industry. Protectionism may well succeed in its immediate aim of creating a moat around vulnerable sectors. Just don’t expect a dramatic return to a glorious, bygone era.

Back in 2018, Trump implemented steel duties citing national security concerns, declaring that the US had been “unfairly treated” by other countries. 

Former President Joe Biden kept those tariffs in place, but both he and Trump granted various exemptions, diminishing their impact. The executive order signed by Trump on Monday implements tariffs on all US steel and aluminum imports starting March 12, which would effectively revive and expand the earlier duties.

“This time around, tariff proposals have been placed on multiple trade partners, in a broad-based manner and at the same time. This has meant that the timing, scope and nature of the tariffs have been far more wide-reaching as compared to 2018-19.” Morgan Stanley analysts including Chetan Ahya said in a research note.

Article content

Article content

Like steel producers across most of the developed world, US companies have for decades been unable to compete with Chinese rivals who now account for about half of global output. While the 2018 tariffs didn’t reverse that trend, things stabilized to some extent. US steel capacity utilization improved, bringing financial respite. Nucor Corp., the nation’s largest steelmaker, along with Cliffs and US Steel have seen much stronger profits in recent years, with record earnings in the early 2020s.

Nucor, US Steel and Steel Dynamics Inc. all built mills or undertook expansions in the period. Older US mills also closed, including US Steel facilities in Illinois and Michigan, and Cliffs’ Dearborn site, also in Michigan. Overall US steel output was 79.5 million tons last year, according to World Steel Association estimates, down from 81.6 million tons in 2017, the year before Trump first implemented duties.

Should Trump proceed with the new tariffs next month, US steelmakers still face headwinds. Benchmark prices were down 38% last year. Higher interest rates hurt demand in big steel-consuming industries such as construction. The steel industry had its its worst year for stock performance since 2018.

Article content

Aluminum Impacts

When it comes to aluminum, US production may get a bump. Century Aluminum Co., one of just two remaining US suppliers of primary aluminum, lobbied Trump during his first term and initially benefited from tariffs. The company ended up idling its Hawesville, Kentucky plant in 2022 after energy costs surged, but Harbor Intelligence Managing Director Jorge Vazquez says the smelter will likely reopen if Trump implements the 25% tariff and stacks it onto previous duties. Another smelter in Missouri could also restart, he said.

However, the impact of those two plants would be limited. The domestic US industry has shrunk more dramatically than steel. Smelter production of the lightweight metal is down by about three-quarters over the past three decades.

The country now has just four operating smelters that together produced about 680,000 tons of aluminum last year. That’s down from 741,000 tons in 2017, according to data from researcher Harbor Intelligence. In comparison, China — which, as with steel, makes more than any other country — produced about 43.4 million tons of aluminum last year.

(Added analyst comments in the 7th paragraph. A previous version was corrected to reflect an implementation date of March 12, stated in White House orders. A White House official had previously said they would take effect March 4.)

Article content