https://www.cnn.com/2025/03/12/economy/trump-steel-aluminum-tariffs-hnk-intl/index.html

It’s the latest salvo in Trump’s multifaceted tariff plan aimed at correcting perceived trade imbalances and reigniting domestic industry. But it risks igniting a global trade war. The European Union, hit for the first time by higher U.S. tariffs since Trump returned to the White House, retaliated within hours with countermeasures on U.S. goods exports. And later, Canada announced over $20 billion in retaliatory measures as well.

Trump said the United States would up the ante after the European and Canadian retaliation, but he did not spell out how or when the United States would respond.

“Of course I will respond,” Trump said.

The tariffs on steel and aluminum mark the first time in Trump’s second term that a set of tariffs has been applied to all countries.

A Risky Bet

Imposing steel and aluminum tariffs poses a risky bet: Although it could give America’s steel and aluminum industries a boost, it will raise prices on a key ingredient for American manufacturers, which could be passed on to consumers. The costs could outweigh the benefit.

That’s what happened in Trump’s first term: Although Trump’s 2018 metals tariffs expanded U.S. production modestly, it sent costs rising for cars, tools and machines and shrank those industries’ output by more than $3 billion in 2021, the International Trade Commission found in a 2023 analysis.

It could also backfire on the industries it’s designed to protect: Trump’s tariffs could cost 100,000 American jobs, including 20,000 from the aluminum industry, William Oplinger, CEO of Alcoa, one of the largest US aluminum makers, warned last month.

Though Alcoa is headquartered in Pittsburgh, a significant share of its aluminum production is in Canada, where it is much cheaper to produce because of energy efficiencies there, and then shipped to the U.S. for processing, Oplinger said. That’s in part why the company believes the tariffs, particularly on Canadian aluminum, would force U.S.-based aluminum companies to lay off workers.

“While we’re very supportive of their efforts to improve the industry as well as strengthen U.S. manufacturing jobs, we do see that there could be some harm from the tariffs,” Alcoa chief financial officer Molly Beerman said at a recent JPMorgan industry conference. “We’re particularly focused on gaining a Canadian exemption.”

Canada Retaliates

Before his recent action, Trump had only enacted tariffs that applied to China, Mexico and Canada this term. In the case of Mexico and Canada, businesses can avoid paying tariffs through April 2 if they comply with the USMCA.

Canada has announced a series of retaliatory measures, which includes 25 percent tariffs on $29.8 CAD billion ($20.1 billion) imports of U.S. goods such as steel and aluminum products.

Canada has also targeted billions of dollars’ worth of imports from the U.S. of computers, sporting equipment and cast-iron products.

“We will continue to maintain our countermeasures and increase them on April 2,” Finance Minister Dominic LeBlanc said. (April 2 is the date the administration said reciprocal tariff actions will be announced across many countries.) LeBlanc is set to travel to Washington tomorrow to meet with US Commerce Secretary Howard Lutnick.

LeBlanc later said he spoke with Lutnick and the two had “a good conversation.”

“Our hope is that we can quickly find a way to get to a situation where both economies can prosper and we don’t have this sort of back and forth in terms of tariffs. It’s not in the interest of Canadian or American consumers,” LeBlanc said.

Speaking at an Ontario-based steel mill, Canada’s Prime Minister Designate Mark Carney he is ready to meet with Trump, but he wants America to respect its northern neighbor’s sovereignty. Carney’s remarks marked his first direct message to Trump since winning his party’s leadership election earlier this week.

“We’re working for a common approach, a much more comprehensive approach for trade,” he added. “We are all going to be better off when the greatest economic and security partnership in the world is renewed … You have a new government but the same commitment.”

Canada’s Algoma Steel (ASTL) said it is temporarily suspending all shipments to the U.S. in response to the tariffs.

The pause will be in place until the company has a better understanding of where tariffs stand given the heightened volatility lately, Michael Garcia said.

Algoma is one of the largest Canadian steel companies and a major supplier to the U.S. In anticipation of the tariffs and the potential financial ramifications of them, Algoma laid off 20 workers, the Toronto Star reported.

Trump 2.0’s First Worldwide Tariff Escalation

The EU responded to the “unjustified” tariffs by unveiling countermeasures on up to €26 billion ($28 billion) worth of American goods exports, including tariffs on boats, bourbon and motorbikes. The measures, which will come into force in April, are “swift and proportionate,” it said in a statement.

The U.S. was the second-biggest destination for the EU’s iron and steel exports last year, according to official figures recently released. In 2023, the latest year for which data is available, it was also the second-largest buyer of European aluminum.

The tariffs’ “aggregate macroeconomic effect on Europe is likely to be small,” said economists at Nomura. But they added: “Trump is likely to announce further tariffs on April 2… And sizable negative effects on global – and European – growth may also hit even before major tariffs are implemented, via the rise in trade policy and geopolitical uncertainty that Trump’s presidency is generating.”

Shortly before the tariffs went into effect, Australian Prime Minister Anthony Albanese criticized them as “entirely unjustified” and “against the spirit of our two nations’ enduring friendship,” but said Canberra will impose no reciprocal levies.

“Tariffs and escalating trade tensions are a form of economic self-harm and a recipe for slower growth and higher inflation,” he said in a statement. “This is why Australia will not be imposing reciprocal tariffs on the United States.”

Mexican President Claudia Sheinbaum said her country would be taking a similar approach for now.

“We will wait until April 2, and from there we will define whether reciprocal tariffs will also be applied in the case of aluminum and steel or depending on how things come. We will keep this process and the dialogue open until (April 2),” she said.

Steel tariffs of 25 percent launched in Trump’s first administration and continued by former President Joe Biden resulted in American importers shifting to other sources.

However, the Biden administration had allowed for exceptions on the duties from U.S. allies, including Canada, Mexico, Japan and South Korea. Trump’s latest action reverses that with no exceptions on any countries’ steel imports to the U.S. The same applies for aluminum, with rates climbing to 25 percent from 10 percent.

China is the only country whose aluminum and steel will be tariffed at rates higher than 25 percent. That is because a 20 percent across-the-board tariff on Chinese imports was already in effect prior to Trump’s recent action, and the 25 percent steel and aluminum tariffs will be tacked on top of that, bringing the total tariff rate to 45 percent on steel and aluminum from there.

America imports very little steel directly from China, by far the world’s largest producer of steel.

Yet Chinese steel does make its way into the United States secondhand. Some is purchased by foreign countries and reshipped to the U.S. And some of it is mislabeled and resold through various channels.

Steel and Aluminum are Critical Inputs

While Trump’s aim is to hurt the Canadian economy by imposing higher steel and aluminum tariffs on them, the move risks hurting the American economy as well.

In total, the U.S. imported $31.3 billion worth of iron and steel and $27.4 billion of aluminum last year, according to data from the U.S. Commerce Department. (The government data groups iron and steel together.)

Canada was the top source of iron, steel and aluminum sent to the U.S. last year, with the U.S. importing $11.4 billion worth of aluminum and $7.6 billion worth of iron and steel from there.

With aluminum, other top foreign sources shipping to the U.S. include China, Mexico and the United Arab Emirates. With steel, Brazil, Mexico and South Korea are top sources, according to U.S. trade data from last year.

Aluminum and steel are used heavily in an extensive list of goods. Tariffs on both metals could significantly raise prices for Americans.

For example, cars contain hundreds, if not thousands, of pounds of steel and aluminum. So, while Trump said his “substantially” higher auto tariffs will “shut down” the auto industry in Canada, they are more likely to backfire on U.S. auto production, given how intertwined the North American car supply chain is.

Appliances, machinery, infrastructure, medical devices, cans and power lines are all among the many commonly used products that also rely on steel and aluminum. And to prevent companies from importing finished goods to skirt tariffs, as many did during Trump’s first term, this round of tariffs includes many items manufactured with steel and aluminum.

Even before Trump’s recent action, the prospect of higher tariffs on steel and aluminum led to sharp increases in market-traded spot prices for the metals, said Phil Gibbs, an analyst at KeyBanc.

The price of domestic steel is up more than 30 percent in the last two months, he said, while the domestic price of aluminum has risen about 15 percent.

Many large industrial customers might be protected from those price increases in the near term because of long-term contracts they have locked in, but should the steel and aluminum tariffs stay in place, they can expect to pay more even if the products they are buying come from domestic mills.

And the tariffs are likely to affect not only the raw products being imported, but also the cost of imported parts made using the metals. For instance, the price of an aluminum bumper or radiator purchased by an automaker from a Canadian or Mexican parts supplier would likely increase.

On Again, Off Again

Trump’s policy has had plenty of fits and starts. Hours before enacting the latest tariffs, Trump reversed a threat to double the rate on steel and aluminum from Canada, the U.S.’s top source of imports for the metals. Instead, steel and aluminum from there will be subject to the 25 percent levy.

“It may go up higher,” Trump said recently of the 25 percent tariffs on all countries’ steel and aluminum sent to the U.S. at an event hosted by the Business Roundtable. “The higher it goes, the more likely it is they’re going to build,” he said, referring to more companies moving their production to the U.S.

Trump backed off his threat to double the steel and aluminum tariff rates for Canada after Ontario Premier Doug Ford agreed to pause surcharges on electricity for U.S. customers.

Ford and U.S. Commerce Secretary Howard Lutnick announced they would meet, along with Canadian Finance Minister Dominic LeBlanc, to renegotiate the free trade treaty known as the USMCA.

Discussion Questions

1. What is a tariff?

A tariff, quite simply, is a tax imposed by a government on imported goods and/or services.

A tariff can serve various purposes, including: (1) protecting domestic industries; (2) influencing trading partners; and (3) raising revenue. Tariffs increase the prices of foreign products and can be used as a form of regulation in international trade.

2. Who pays the costs of tariffs?

Although an importer may absorb some of the initial costs of tariffs, ultimately, consumers will pay the higher costs.

According to www.moneywise.com:

(1) Tariffs often lead to higher prices for businesses and consumers, as importers pass on the added costs of the tariffs.

(2) Markets and investors react to tariff changes, with global portfolios facing heightened risk from trade disputes.

(3) Although tariffs can protect domestic industries by making foreign goods less competitive, they may trigger retaliatory trade measures.

For more information regarding tariffs, including their effect on the domestic and international economies, please see the following:

https://moneywise.com/investing/what-is-a-tariff

3. What is trade war?

A trade war is an economic conflict, often resulting from protectionism, in which nations create or raise tariffs or other trade barriers against each other in response to trade barriers created by the other party.

A trade war can escalate quickly through a series of responsive trade restrictions. For example, suppose Country A decides to impose tariffs on its trading partner, Country B. Country B responds by imposing in-kind tariffs against Country A. Country A responds by imposing even higher tariffs against Country B. Based on this example, it should be easy to see how a trade war can result in upward-spiraling trade restrictions, with the former trade partner now a trade enemy. Ever-escalating tariffs will ultimately be paid by the consumer due to higher product prices.