Trump Imposes 25% Tariffs on Steel and Aluminum Imports

We are now in the fourth week of President Trump's term, and his approach to tariffs has evolved significantly. Initially, tariffs were primarily used as a tool to address fentanyl and immigration issues. However, the focus has recently shifted towards securing the supply chain. Over the weekend, Trump announced a new set of tariffs, imposing a 25% levy on aluminum and steel imports from all nations. Additionally, there were hints at an upcoming conference centered on trade reciprocity, signaling further trade imbalance concerns.

The official order for these tariffs came late Monday evening when Trump authorized a 25% tariff on steel and aluminum imports. This decision marks an escalation in the administration's efforts to shield critical American industries by implementing tariffs, which will particularly impact the country's closest trading partners. Among the most affected is Canada, which serves as the primary supplier of steel and nearly the sole provider of aluminum to the United States.

To provide some perspective, about one-fourth of the steel used in the U.S. is imported, with the bulk coming from Canada and Mexico, as well as Asian and European nations such as Japan, South Korea, and Germany. While China is recognized as the world's top steel producer and exporter, very little of its steel actually reaches the U.S. This is primarily due to the 25% tariffs that were imposed in 2018, which effectively blocked Chinese steel from entering the American market. Last year, China shipped only 508,000 net tons of steel to the U.S., making up just 1.8% of the total steel imports in the country.

The situation with aluminum is even more pronounced. The U.S. relies heavily on foreign aluminum, importing approximately half of its supply. Canada plays a crucial role in meeting this demand, accounting for 3.2 million tons last year—more than double the combined total of the next nine largest exporting nations.

Trump's new tariffs build on a range of existing trade measures, including a fresh 10% tariff on Chinese goods and 25% duties on imports from Canada and Mexico, though those are currently on hold. The broader strategy aims to tackle U.S. trade deficits and leverage international trade as a revenue source. This move represents Trump's most sweeping action yet in his ongoing efforts to reshape global trade relations.

The authority for these tariffs stems from Section 232 of the Trade Expansion Act, which allows the president to impose trade restrictions on national security grounds. This is the same legal framework Trump used in 2018 to introduce similar steel and aluminum tariffs. With this new directive, he is essentially reinstating and broadening those policies.

A senior White House official defended the decision, asserting that past exemptions had been exploited by steel and aluminum exporters, which ultimately harmed U.S. manufacturers. Speaking on condition of anonymity, the official explained that Monday's move was necessary to correct these issues.

Bloomberg reports that Trump's latest move is particularly significant because it extends tariffs beyond raw materials to include finished products. This expansion means that tariffs will now apply to extrusions, slabs, and other processed materials essential for manufacturing items such as automobiles, window frames, and skyscrapers. For years, trade protectionists have pushed for such measures, and Trump is now delivering on their demands.

Additionally, Trump has directed U.S. Customs and Border Protection to enhance its oversight, ensuring that foreign exporters do not misclassify steel products to bypass the new tariffs. This strategy mirrors the approach Trump took in his first term when he implemented tariffs on steel and aluminum, leading to a sharp decline in U.S. imports of these metals. Predictably, the move triggered retaliatory actions from trade partners like the European Union, which imposed countermeasures on iconic American products, including Harley-Davidson motorcycles and Levi's jeans.

Initially, Trump provided exemptions to several key exporters, including Canada, Mexico, and Brazil. His successor, Joe Biden, later expanded those exemptions. However, with this latest move, Trump is signaling a shift back toward a more protectionist stance.

One of the key figures analyzing these developments is Goldman Sachs commodities trader Adam Gillard. He provides insights into the current U.S. import requirements and the potential effects of the new tariffs. According to him, primary imports of aluminum (classified under HS code 7601) amount to roughly 4 million metric tons per year, compared to domestic production of about 0.7 million metric tons. A significant portion—about 68%—of these imports come from Canada.

Under Trump's first term, a 10% tariff was imposed on aluminum imports, but exemptions for Canada, Argentina, and Australia meant that, in practice, tariffs were not applied to most U.S. imports, as Canadian supplies filled the gap. Market incentives for aluminum imports are largely driven by differences between U.S. and European pricing, with the Midwest Premium (MWP) serving as a key metric. Before the recent tariff announcements, the MWP was trading at approximately $0.19 per pound ($420 per metric ton), compared to the European duty-paid rate of $340 per metric ton. To encourage continued imports under the new tariff regime, MWP prices would need to rise to around $0.50 per pound.

Goldman Sachs analysts believe these new tariffs will not significantly impact global aluminum prices outside the U.S. Instead, they predict that the MWP will increase to maintain incentives for Canadian exports to the U.S. Despite these expectations, Deutsche Bank's head of FX, George Saravelos, warns that broader reciprocal tariffs could have varying effects depending on how they are defined.

If reciprocal tariffs are implemented in a limited manner—meaning that the U.S. simply mirrors the existing tariffs imposed by other countries—the overall impact would be relatively minor. According to Deutsche Bank calculations, this approach would result in an average increase of only 2% in U.S. tariffs. However, the consequences would vary across different countries, with nations such as Vietnam, Thailand, and India being among the most vulnerable.

A broader interpretation of reciprocal tariffs, however, could be much more damaging. Trump and his economic advisors, including National Economic Council Chair Kevin Hassett, have frequently pointed to high European taxation on U.S. businesses, particularly in the form of value-added taxes (VAT) and other non-tariff barriers. If reciprocal tariffs are designed to offset these discrepancies, U.S. tariff rates could rise by over 10%, hitting European economies particularly hard.

While steel and aluminum tariffs can be enacted quickly under Section 232, broader reciprocal tariffs would likely require an investigation under Section 301 or Section 338. These avenues were explicitly referenced in the administration's initial tariff memorandum. Given the complexities involved, immediate implementation is unlikely, but if it happens unexpectedly, it could be a significant shock to global markets.

Goldman Sachs strategists, including Mike Cahill and Alec Phillips, note that Trump's approach to Canada and Mexico's tariffs does not necessarily indicate a de-escalation of trade tensions. Instead, they view these "negotiating tariffs" as distinct from Trump's long-standing protectionist measures. The steel and aluminum tariffs, though affecting less than $50 billion in imports, have been a focal point for Trump since 2018. They represent a microcosm of his broader trade policy—often larger in scope than anticipated, subject to delays and adjustments, but eventually enforced.

The potential expansion of critical goods tariffs remains a key concern. Goldman Sachs estimates that the administration may impose a 10% tariff on $609 billion worth of critical imports, covering industries such as oil, pharmaceuticals, and semiconductors. If implemented, these tariffs would significantly impact imports from Canada, the European Union, and Asia.

With reciprocal tariffs now under serious consideration, the economic landscape could shift dramatically, particularly for emerging markets such as Thailand, India, and Brazil. Even developed economies like the EU are at risk, especially given disparities in automotive tariffs between the U.S. and Europe.

Ultimately, Trump's tariff strategy continues to evolve, and its full impact remains to be seen. Whether through negotiating tactics or outright protectionism, his administration is reshaping global trade dynamics in ways that could have lasting consequences.