What a Tariff on Steel and Aluminum Means

Kent Forsey, CFP® Economic Impact, Tariffs, Trade Policies

Hillspring Financial

April 2018

Much has been made in the media recently about steel and aluminum tariffs.  Most of the news has been aimed at criticizing the President for something that would add to consumer costs of goods and services but there is more to the story.

The Department of Commerce released a report in February prompting the President to enact tariffs on steel and aluminum imports entering the United States.  The imposed tariffs, essentially a tax on steel imports of 25% and 10% on aluminum imports are in response to the findings of the Commerce Department report and carried out under Section 232 of the Trade Expansion Act of 1962.

Detailed in the Section 232 report are findings that excess imports of these metals into the United States hazard a “weakening of our internal economy” and “threaten to impair the national security” of the country.

The United States is the world’s largest importer of steel, exceeding exports by nearly four times.  Demand for steel and aluminum is driven by various industries including automotive, aerospace, consumer goods and defense.  They are indispensable materials used in building and expanding a country’s infrastructure.

Ten steel furnaces have closed since 2000, displacing over 52,000 U.S. steel workers.  Meanwhile, international production of steel is up over 127% employing tens of thousands of workers globally.  China is by far the largest producer of steel worldwide, as well as the largest source of excess capacity, which is why the country is a target for the new tariffs.  China alone produces more steel in one month than the U.S. does in a year.

Several countries are being targeted for the newly imposed steel tariffs, notably Canada, Brazil, South Korea and Mexico.  The Section 232 report has determined that these countries have been selling steel to the U.S. at below market prices, thus dumping steel onto the market.  The dumping practices of these countries has led to unfair competition by U.S. steel firms, not allowing them to gain market share.

Between 2013 and 2016, U.S. aluminum industry employment fell by 68%.  Six smelters shut down and only two of the remaining five are operating at full capacity, despite an increase in U.S. demand for primary aluminum.  There is only one remaining U.S. producer of high-quality aluminum alloy reserved for military aerospace needs and maintaining/upgrading our infrastructure, which must be done for reasons of economic security.

Many are worried about what the impact will abe for American consumers and businesses.  Economists believe the initial effect on consumers will be slightly higher prices for aluminum can products and autos.  The automotive and aerospace industries will initially by impacted until U.S. steel and aluminum producers come online to restore ample supply.  Many see the dynamics as short-term pain for long-term gain.

Kent G. Forsey, CFP®