President Trump’s tariffs
President Trump has imposed a flat tariff of 25% on all steel imports and 10% on aluminum imports (AA). The tariffs would be in addition to any trade barriers already in place. Canada, Mexico, and Australia could be exempt from the duties. Trump has also left the door open for more exemptions in the future. Although US steel stocks fell after Trump softened the tariffs, the broader market indexes and ETFs such as the SPDR S&P 500 ETF (SPY) saw an upward price action. US steel prices have shot through the roof as US steelmakers raised their base selling prices.
Tariff and prices
Tariffs, like the one imposed by Trump, could end up raising prices for consumers. Simply put, US steel and aluminum buyers such as automotive companies and appliance manufacturers would now pay higher prices for steel and aluminum. Unit production costs are expected to increase for these companies after the tariff is imposed. It remains to be seen whether companies such as Ford (F) and General Motors (GM) will absorb the higher costs or pass them on to consumers.
Higher steel prices
According to Richard Chriss, president of the AIIS (American Institute for International Steel), “Free trade in steel means that Americans pay global market prices.” He added, “While this competition may indeed reduce the profits of domestic manufacturers, other steel-related businesses and consumers benefit from not having to pay the artificially high prices that would result from measures that restrict trade.”
In the next and final part of this series, we’ll see what might happen if some of the United States’ trading partners retaliate after the tariffs.