In a significant policy shift, President Donald Trump has heightened tariffs to 25% on all steel and aluminum imports, a decision announced on Wednesday. This initiative aims to stimulate job creation within U.S. manufacturing sectors amidst fluctuating market conditions, compounded by fears of an economic downturn.
Originally set at 10% for aluminum, Trump has now removed any exemptions granted since the 2018 tariffs on metals were enacted. His decision follows a directive issued in February, marking an aggressive stance to overhaul international trade practices. The U.S. has already instituted separate tariffs against Canada, Mexico, and China, with plans to extend such measures to the European Union, Brazil, and South Korea by introducing similar “reciprocal” tariff rates beginning April 2.
In response, the European Union has prepared its countermeasures. European Commission President Ursula von der Leyen revealed that the U.S. $28 billion worth of tariffs would be met with EU countermeasures totaling 26 billion euros (approximately $28 billion). These countermeasures are set to be enacted on April 1 and cover a diverse range of goods, including steel, aluminum, textiles, home appliances, and agricultural items.
During a meeting with CEOs at the Business Roundtable, Trump claimed that these tariffs encourage investment in U.S. factories. Despite a recent 8% decline in the S&P 500 index driven by economic growth fears, Trump believes increased tariffs will effectively incentivize companies to relocate manufacturing operations to the U.S. “The higher it goes, the more likely it is they’re going to build,” Trump stated, emphasizing factory relocations as a bigger victory than the tariffs themselves.
Further, Trump initially threatened a 50% tariff on Canadian steel and aluminum, but retracted to the 25% levy after Ontario halted plans to impose a surcharge on electricity sold to specific U.S. states. This decision forms part of an agenda to address what Trump views as unresolved issues from his earlier term. While federal revenue from these tariffs was insufficient to significantly impact inflation, the initiative aims to eliminate previous exemptions that undermined the 2018 tariffs.
Canada and Mexico managed to escape these duties following their agreement on a revised North American trade deal in 2020, while other trading partners faced import quotas instead. U.S. companies could also seek exemptions if domestic suppliers couldn’t meet their steel demands, a leeway that may be reduced.
While these tariffs could benefit domestic steel and aluminum producers, they may also result in higher costs for manufacturers relying on these materials. Economic analysis suggests that while sectors like steel and aluminum benefited from the tariffs, they negatively impacted manufacturers using these materials. According to a U.S. International Trade Commission report from 2023, downstream production decreased by nearly $3.5 billion in 2021, overshadowing a $2.3 billion rise in steel and aluminum output.
Trump maintains that tariffs will ultimately boost domestic manufacturing, with companies like Volvo, Volkswagen, and Honda reportedly contemplating expansion within the U.S. However, higher prices and reduced sales could deter some companies from investing in additional facilities. John Murphy, a senior vice president at the U.S. Chamber of Commerce, poses a critical question for executives: “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?”
The primary steel exporters to the U.S. include Canada, Mexico, Brazil, South Korea, and Japan, with Taiwan and Vietnam showing rapid growth in exports, as reported by the International Trade Administration. Meanwhile, only a small portion of U.S. steel imports come from China, despite being the world’s largest steel producer. The majority of U.S. aluminum imports originate from Canada.
