Section 232 tariffs
We saw a selling spree in US steel stocks last week when President Trump exempted several countries including Brazil and South Korea, the second and third largest steel exporters to the United States, respectively, from the Section 232 tariffs. The unleashing of a trade war between US and China, which led to a sell-off in broader markets, further fueled a sell-off in steel stocks.
Looking at March 23 closing prices, U.S. Steel (X) and AK Steel (AKS) have now fallen below the price levels when the Commerce Department first released its Section 232 investigation findings on February 16. The same holds true for Nucor (NUE), Steel Dynamics (STLD), and Cleveland-Cliffs (CLF). This brings us to the key question: are US steelmakers better or worse off after the tariffs?
To begin with, let’s remember that the Section 232 tariffs are in addition to other trade remedies already in place. Simply put, even the toned-down tariffs are in addition to several other trade barriers in place. Although the Section 232 tariffs might have fallen short of expectations, they should still help in curbing US steel imports. The Commerce Department intends to curtail US steel imports and boost the US steel industry’s capacity utilization rate with the tariffs.
The exemptions proposed by President Trump are temporary in nature and we could even see a quota if we see a surge in imports from the exempted countries. While the window for more exemptions might have left an air of uncertainty in US steel markets, there could also be some apprehensions in steel exporting countries, and they could opt for voluntary restraint in steel exports to the US.
In other words, even the toned-down tariffs are positive for the US steel industry. However, a trade war between the United States and China could change things. We’ll discuss this in the next article.