Last week, President Trump made two decisions that might not sit well with US steel companies. First, Trump cut Section 232 steel tariffs on Turkey in half to 25% from 50%. While steel imports from other countries attract a 25% tariff, last year, Trump doubled the tariffs on steel imports from Turkey amid the diplomatic brawl between the two countries.
In another development, President Trump has exempted Canada and Mexico from Section 232 tariffs. The exemption was largely expected given the fact that Section 232 tariffs were an impediment to the revised NAFTA that’s been rechristened as the USMCA. However, unlike Section 232 exemption for other countries, the Trump administration has not been able to impose a quota on Canada and Mexico. From US steel companies’ perspective, a complete exemption without an accompanying quota would be nothing short of a disappointment.
Steel companies were banking heavily on President Trump’s support in what they say are unfairly traded steel products. Canada is the largest steel exporter to the United States followed by Mexico. Steel and iron ore stocks closed down on Friday, and U.S. Steel (X), Nucor (NUE), and Cleveland-Cliffs (CLF) fell 1.8%, 3.1%, and 0.4% respectively. However, AK Steel (AKS) closed with gains of 0.8%. Broader markets also closed in the red, and the S&P 500 (SPY) lost 0.58% on Friday.
Section 232 tariffs
Notably, the lowering of Section 232 tariffs on Turkey is especially negative for Nucor. Nucor is the largest rebar supplier in North America, and the company is investing to further expand its capacity. Turkey was a major supplier of rebars before the tariff hike kicked in. However, after the tariffs, steel imports from Turkey have plummeted and are down more than 60% year-over-year in the first quarter.