Are Trump’s US Steel Tariffs Just a Pawn in the Game?

  • Last year, President Trump authorized a 25% tariff on US steel imports based on the Department of Commerce’s recommendation. President Trump authorized several changes to the tariffs. The most important change was full exemption for Canada and Mexico.
  • President Trump has also played around with Turkey’s steel tariffs. Last year, the tariffs increased to 50%. However, the tariffs were lowered to 25% earlier this year. Currently, President Trump authorized doubling the tariffs on Turkey to 50%.

Trump’s US steel tariffs

President Trump’s Section 232 tariffs were a shot in the arm for steel companies. However, the administration has made several changes to the tariffs. Canada, Mexico, and the European Union were exempt from the tariffs. However, they were eventually covered under the tariffs. This year, President Trump exempted Canada and Mexico from the Section 232 tariffs in an apparent bid to make way for the USMCA. While Mexico has ratified the USMCA, Canada and the US still need to ratify the agreement. The Trump administration also granted an exemption with a quota to South Korea.

Turkey

Meanwhile, President Trump has used steel tariffs liberally against Turkey. Last year, amid rising political heat, President Trump raised Turkey’s Section 232 tariffs to 50% from 25%. Earlier this year, the tariffs were restored to 25%. Now, amid rising tensions due to Turkey’s actions in Syria, he authorized doubling the tariffs on Turkey to 50%. Turkey has been a major rebar exporter to the US. Nucor (NUE) is the largest rebar supplier in North America. In comparison, U.S. Steel (X) and AK Steel (AKS) are mainly flat-rolled producers. Turkey’s steel exports to the US have fallen more than 58% year-over-year in the first seven months of 2019.

What do frequent changes in steel tariffs mean?

Frequent changes to the tariffs create uncertainty. Rising geopolitical tensions are also negative for equity markets. Notably, US steel stocks aren’t an exception. Last year, when President Trump authorized doubling Turkey’s tariffs, there was selling pressure in steel stocks. As things turn out, President Trump’s steel tariffs have nothing to do with US national security.

US steel tariffs have been a pawn in the broader game. In order to achieve a bigger trade deal, the Trump administration looked amenable to relaxing the Section 232 tariffs. Over the last year, Nucor and Steel Dynamics announced several new projects to capitalize on the tariffs. U.S. Steel also doubled down on its capex and reopened two of its blast furnaces last year. The company has to rethink its strategy due to falling metal prices. U.S. Steel and ArcelorMittal (MT) announced some US capacity curtailment.

Global slowdown

The slowdown isn’t limited to the US. ArcelorMittal and U.S. Steel also curtailed some of their capacity in Europe this year. Notably, the global steel industry’s woes have intensified this year despite falling Chinese steel exports. In general, steel mills see Chinese overcapacity and steel exports as a major challenge. However, the global slowdown and trade uncertainty are a bigger challenge for the broader metals and mining industry.