How Incoming Tariffs on Steel and Aluminium May Affect Our Nation
Raw steel in a factory. Source: Raw Pixel
The Trump Administration has signed an executive order calling for a 25% flat tariff on all steel and aluminium imports beginning March 12, 2025. While an almost identical tariff was implemented by the first Trump Administration in 2018, this round of tariffs may have new implications for stakeholders.
In 2018, the Trump administration imposed a 25% tariff on steel and a 10% tariff on aluminum while allowing for American companies who rely on steel and aluminum to be exempt from the tariffs. However, in the new set of tariffs set to take effect in March, aluminium tariffs are increased and there are no exemptions for companies in the United States. President Trump has championed this executive order as bringing our “great industries” back to America. While studies have shown the initial tariffs in 2018 helped steel and aluminum manufacturers in the United States, they also played a role in damaging the economy.
These tariffs are used to make imported metal more expensive, which in turn would ideally make U.S. businesses buy these metals from American manufacturers instead of foreign ones. However, if a business relies on steel or aluminum for manufacturing, their production costs will likely go up as the motivation for utilizing imported metals is that it is less expensive.
Think of it this way: if you own a small business that sells bicycles, you have the option to buy the metal bike frame from a U.S. manufacturer or a foreign manufacturer (most commonly Canada or Mexico). If the frames from Canada or Mexico are cheaper, you will most likely import frames because it is to your economic benefit. Now, after March 12 when the tariffs are in effect, you will be paying 25% more to import your frames.
While the hope is that these tariffs will make businesses turn toward metal manufacturers in the United States, they come at a time when steel and aluminum industries are experiencing a long-term decline. Over the last few decades, domestic production has waned due to many factors like automation or competitive foreign pricing. Although the 2018 tariffs provided the American steel and aluminum business with a temporary boost, it remains a struggling industry in terms of job retention and output. Through the year 2000, the United States was the leading producer of primary aluminum, but by 2021, it had slipped to the 9th largest producer, accounting for less than 2% of global aluminum production. The first round of tariffs created short-term relief; however, it did not address the long-standing issue of reviving a declining industry.
The implications of a declining steel and aluminum industry may fall not only on businesses, but also on consumers. When cost of production increases, it is typical for a business to increase the price of the product to cover their extra costs. This is bound to affect everyday Americans as many industries rely heavily on steel and aluminum - most notably being car manufacturers, aluminum can manufacturers, and construction companies. Higher steel prices could mean an increase in the cost of vehicles, while higher aluminum prices may increase the cost of everyday kitchen staples like canned goods or soda. Similarly, in the construction industry, higher material costs may result in increased home and infrastructure project prices.
Beyond price increases, the proposed tariffs would pose a threat to job security. As previously mentioned, the steel and aluminum industry is declining. As of 2024, the steel industry housed 80,173 direct industry jobs while the aluminum industry had 164,000. In total, industries that rely on these metals employ more than 12 million Americans. A study completed by the Federal Reserve Board of Governors showed that, in mid-2019, there were 75,000 fewer jobs in metal manufacturing that were directly attributed to the 2018 Trump Administration Tariff.
With an increasingly vulnerable steel and aluminum industry, as well as an increase in the metal tariff from 2018, it is plausible that in the months following March 2025, the United States will experience similar effects of the 2018 tariff at an equal or higher rate. The tariffs may increase the price of production for auto manufacturers, raise prices for consumers, and threaten industries who rely on steel and aluminum that employ millions more Americans. While this is the precedent of the 2018 tariffs, there is the additional prospect that these tariffs will boost domestic production of steel and aluminum by making domestic alternatives more competitive. Ultimately, the effects of these tariffs will depend on how industries adapt and how market dynamics unfold in the following months.