All US consumers of steel and aluminum will pay higher prices, especially the automakers.
Bloomberg reports Trump Unveils 25 Percent Tariffs on Steel and Aluminum.
President Donald Trump, speaking to reporters Sunday on Air Force One, said he would announce new tariffs on steel and aluminum from all countries.
Sunday’s move is Trump’s latest in a series of threatened tariffs on countries and specific sectors that have rattled markets in recent weeks. Yet it’s uncertain whether he’ll follow through — he announced, then paused, tariffs on Canada and Mexico, while proceeding with levies on China.The US relies on aluminum imports from countries including Canada, the United Arab Emirates and Mexico, to meet the vast majority of demand — net imports added up to more than 80% in 2023, according to Morgan Stanley. Steel imports account for a smaller portion of overall consumption, but are vital for sectors leaning on specialty grades, including aerospace, auto manufacturing and energy, from wind developers to oil drillers.
Tariffs Not Easily Averted
The Wall Street Journal reports Trump’s Next Round of Tariffs—25% on Steel and Aluminum—Won’t Be So Easily Averted
“Very simple, they charge us, we charge them,” Trump said Sunday. Those will go into effect “almost immediately,” Trump said.
“Tariffs are going to help. Tariffs are going to make it very successful,” Trump said as he previewed the new levies on Sunday afternoon to reporters flying with him aboard Air Force One en route from Florida to Louisiana, where he attended the Super Bowl.
Congressional Republicans are largely on board with the use of tariffs to address structural trade issues, such as subsidies and discrimination. But they raised some questions about Trump’s plans to use duties to raise revenue.
“I’ve heard figures of almost $1 trillion in revenue or replacing the income tax, and I’m just not seeing it,” Sen. Ron Johnson (R., Wis.) told U.S. Trade Representative nominee Jamieson Greer at his confirmation hearing last week. Greer conceded that the administration is “not in a position to, tomorrow, fund the government using tariff revenue,” though tariffs were an important revenue source in U.S. history, particularly in the 19th century.
In addition to tariffs on products that Trump previewed last week, such as semiconductors, Trump’s aides and allies warn that the European Union and South Korea also are in the firing line because of taxes, regulations and penalties they have imposed on U.S. tech companies such as Alphabet’s Google.
“I think Europe is in for a massive trade war,” said Robert O’Brien, Trump’s first-term national security adviser. “I do not believe the president is going to put up with this type of action against America’s biggest companies.”
Trump has long complained that the U.S. buys more from the bloc than it sells to it, and said last week tariffs on the EU “will definitely happen.”
Higher Inflation?
That is the subject of much debate.
Higher prices did not happen much under Trump I tariffs because a higher dollar and tariff avoidance eased much of the pain.
Also higher prices and higher taxes will reduce demand. That’s a third factor.
Notably, tariffs on steel and aluminum are much higher to avoid. There is no way hide commodity prices by routing through Vietnam.
Finally, tariffs are a tax on consumers, no matter what Trump thinks. Some small parts makers may go out of business.
It’s no so simple to say “tariffs didn’t raise prices much the first time so they won’t now.”
There will be a negative impact either in prices, a slowing economy, retaliations, or all three.
For further discussion and many charts, please see my post last Friday Trump Announces Reciprocal Tariffs Next Week, a Major Trade War Escalation
Also see my January 18 post The US Trade Deficit with China is Understated by as Much as 30 Percent
Normal trade math does not add up. US imports and China exports are not in sync.
I asked Brad Setser, senior fellow for international economics at the Council on Foreign Relations, and Director of International Economics, for the United States Department of the Treasury to comment.
Setser replied “Chinese exports started exceeding US imports only in those categories with tariffs, and only after the tariffs were imposed.”
I commented “This appears to be an amusing case of China cleverly avoiding US tariffs but not clever enough to hide it better.”
These tariffs will not be so easy to hide. I expect Canada, Mexico, and China will respond.