The US Commerce Department has announced that it will launch “investigations to determine whether fabricated structural steel from Canada, China, and Mexico is being sold in the United States at less than fair value.” The Commerce Department announced just yesterday preliminary anti-dumping duties on imports of steel racks from China (FXI). Now, what does a probe into imports of fabricated steel products tell us about the tariffs imposed by President Trump? Let’s discuss this in perspective.
Section 232 tariffs
After the imposition of Section 232 steel and aluminum tariffs last year, several observers warned that we could see a spike in downstream imports. Simply put, as it became costlier to import steel into the United States and the spreads between US and international steel prices widened to record highs, there was an incentive to instead import fabricated and semi-fabricated steel products. While US steel and iron ore companies like U.S. Steel (X), AK Steel (AKS), and Cleveland-Cliffs (CLF) benefit from higher steel prices, downstream users (GE) (BA) including automotive companies like Ford (F), General Motors (GM), and Tesla (TSLA) have seen a spike in input costs since the tariffs.
With the new probe, the Trump administration is trying to curb the imports of downstream steel imports. To be sure, the downstream steel-using industry is a far bigger contributor to the US economy (SPY). If we see a spike in downstream steel imports, it wouldn’t only offset Trump’s tariffs but would also negatively impact the domestic downstream fabrication industry.
Read Will Trump’s Steel Tariffs Fail Like Bush’s Tariffs for a detailed analysis of the Section 232 tariffs.