In Washington on Wednesday, President Donald Trump officially elevated tariffs on all steel and aluminum imports to 25%, aiming to bolster U.S. manufacturing jobs. This decision comes as his unpredictable tariff policies unsettle the stock market and fuel concerns about a potential economic downturn.
Trump eliminated all exemptions from his previous metal tariffs set in 2018, and raised the aluminum tariffs from 10%. This action follows a directive issued in February, and is part of a grand strategy to shake up and reshape global trade. The U.S. leader already has tariffs in place for Canada, Mexico, and China, with intentions to impose tariffs on the European Union, Brazil, and South Korea by instituting “reciprocal” rates starting April 2.
During a meeting with the Business Roundtable on Tuesday, Trump asserted that these tariffs would encourage companies to invest in manufacturing facilities across the United States. He remains optimistic that increased tariffs will effectively rejuvenate the manufacturing sector despite the S&P 500 stock index’s 8% drop over the past month due to fears of weakening growth.
“The higher it goes, the more likely it is they’re going to build,” Trump remarked to the group. “The biggest win is if they move into our country and produce jobs. That’s a bigger win than the tariffs themselves, but the tariffs are going to be throwing off a lot of money to this country.”
On Tuesday, Trump also hinted at possible 50% tariffs on steel and aluminum imports from Canada but opted to maintain the 25% rate after Ontario halted plans to impose a surcharge on electricity sent to Michigan, Minnesota, and New York.
In essence, the president is revisiting areas he perceives as incomplete from his first term. Trump had previously increased tariffs, but revenues collected did not significantly influence inflation rates overall.
His 2018 tariffs were eroded by numerous exemptions. Canada and Mexico sidestepped these taxes after agreeing to a revised North American trade agreement in 2020. Other trading partners had quotas replacing tariffs, and U.S. businesses could request exemptions if they couldn’t source domestic metal products.
While the tariffs could potentially benefit U.S. steel and aluminum production, they also risk raising costs for manufacturers reliant on these metals. Overall, economists conclude that while the steel and aluminum sectors saw gains, “downstream” manufacturers using these materials have incurred higher costs. The U.S. International Trade Commission reported a nearly $3.5 billion reduction in production among these downstream companies in 2021, outweighing a $2.3 billion increase in output from aluminum and steelmakers.
While Trump expects these tariffs to lead to more manufacturing facilities domestically, with companies like Volvo, Volkswagen, and Honda considering expanding in the U.S., the potential for increased costs, reduced sales, and decreased profits could deter some businesses from establishing new operations.
“If you’re an executive in the boardroom, are you really going to tell your board it’s the time to expand that assembly line?” questioned John Murphy, senior vice president at the U.S. Chamber of Commerce.
