By Ryan Boyle

The Trump administration has announced new tariffs for three weekends in a row.  The first round, against Colombia, was quickly reversed.  The next, targeting Canada, Mexico and China, was limited only to China, with North American nations getting a reprieve.  The latest move, involving metals, is likely to be permanent.

During his first administration, President Trump’s trade team initiated an investigation and justified tariffs under Section 232 of the Trade Expansion Act; the Act affords the president the right to impose tariffs to protect national security.  The Biden administration temporarily loosened policy in 2022, with a quota system allowing many metal imports to arrive duty-free.  In exchange, the European Union revoked its retaliatory levies on U.S. products like motorcycles and whiskey.  Notably, tariffs on Chinese steel were never rescinded. 

Biden’s détente was set to expire in March 2025, requiring renewed negotiations. The conclusions of the 2018 trade investigation remain valid, and the national security rationale is justifiable.  U.S. primary production of steel peaked in 1973, and its production of aluminum peaked in 1980.  Today, roughly a quarter of the steel and half of aluminum used in the U.S. are imported.

This represents a security risk.  In times of conflict, sources abroad may no longer be reliable.  Sudden national defense demand would quickly overwhelm the nation’s capacity.  And while not the primary rationale of the action, many nations do subsidize their metal manufacturing sector, putting U.S. exports at a disadvantage.

These industry-specific tariffs are meant to bring about a change in trade patterns, rebuilding productive capacity in the U.S. while limiting China’s competitive prospects.  Transitions of such a scale will not come quickly.  A complete restoration of the heyday of U.S. metallurgy is unlikely, with the nation accounting for less than 5% of global capacity. 

Expanding production won’t be easy. American steel plants are utilizing about 80% of their capacity, and many shuttered plants are too antiquated to be brought back online.  In an industry long in decline and consolidation, appetite for new capital investment in steel foundries is limited and will run afoul of environmental regulations.  Even if pollution standards were lifted, the availability and cost of energy will constrain domestic expansion. The disruption from new tariffs will be swift; the upside from supporting domestic industry will be gradual. 

Production of new (primary) aluminum is energy-intensive, with an especially large requirement for electricity.  Factories (smelters) are typically located near abundant sources of energy, like large rivers.  Primary aluminum is made from bauxite, a mineral of which the U.S. has limited reserves and few active mines.  Domestically-produced bauxite is typically used for other chemical production processes.  Amid these constraints, about 80% of current U.S. aluminum production is secondary, recycling scraps from primary production and post-consumer waste.

We were recently disoriented by the pronouncement and suspension of tariffs on Canada and Mexico.  While those across-the-board tariffs are off the table, these nations are at risk of the metals action.  Canada is the largest external source of steel, at about a quarter of U.S. imports; Mexico ranks in third place, just behind Brazil.  All of these nations have only a trivial output compared to China, whose overcapacity has distorted the steel market.  And Canada dominates the U.S. supply of aluminum, representing 40% of imports.

The metal tariffs are codified, with an effective date of March 12, 2025.  Those hoping to see them as the next page in the escalate-to-deescalate trade playbook may be disappointed.  Unlike tariffs targeting a single nation, steel and aluminum are broad categories affecting dozens of trade relationships, meant to bring about lasting change.  There is no demand being made upon other nations to earn a deferral; Trump explicitly stated “no exceptions” when announcing the rule.

Stay tuned: next weekend could bring another interesting twist in the tale of the tariffs.