Steel and Aluminum Tariffs May Raise US Manufacturing Costs

America has seen this movie before: President Trump, who imposed stiff tariffs on Monday on imported steel and aluminum, did so once before, in 2018. So domestic industries have a pretty good idea of how the story ends.

Manufacturers of trucks, appliances and construction equipment scramble to find U.S. sources of metal inputs, keeping steel and aluminum producers busier than they were before. Companies that need specific alloys that aren’t made domestically are forced to pay more. Prices rise, making end products more expensive.

But there may be plot twists along the way. Will Mr. Trump cut deals with some countries, allowing large shipments in without the new duties? Will he set up a process to give companies a reprieve if they can demonstrate a hardship? (On Monday, a White House official said there would be no exclusions.)

All of those could affect the outcome, which is why steel users are proceeding with caution. Angela Holt, who runs a precision machining company and heads the board of the Indiana Manufacturers Association, says the potential impacts on businesses are “complex.”

“It could affect not only the cost but the availability, depending on their situation,” Ms. Holt said. “It’s highly varied, even among industries — I think it’s going to depend on an individual basis where they source their materials, what the competition looks like.”

Lessons From Last Time

Although the American steel and aluminum industries are far weaker than they were in their heyday in the 1970s, U.S. companies import only about 26 percent of the steel they use, according to the International Trade Administration, and that number has been falling.

At the same time, end users seeking alternatives to foreign suppliers may have options. U.S. iron and steel producers are operating at only about 70 percent capacity. The first Trump administration aimed to get to 80 percent, and did so briefly. But underpriced Chinese exports have taken a toll on domestic producers in recent years, forcing older, less efficient mills to close and leaving others with fewer orders than they can handle.

Also, primary metal tariffs don’t appear to be completely passed on to consumers. According to a 2020 study by economists at Columbia University, Princeton University and the Federal Reserve Bank of New York, foreign exporters absorbed about half of the 2018 steel tariffs, dropping their prices to maintain access to the U.S. market.

Still, that doesn’t mean prices won’t increase. In 2023, the U.S. International Trade Commission found that those tariffs increased steel and aluminum prices on average by 2.4 percent and 1.6 percent. Perhaps accordingly, the stocks of U.S. metals processors like Nucor, Steel Dynamics and Cleveland-Cliffs rose on Monday, in anticipation of Mr. Trump’s tariff announcement.

“I think the big takeaway is there were a lot of downstream industries that were impacted,” said Alex Durante, a senior economist at the Tax Foundation who has written about the economic impact of tariffs. “The main effects outweighed whatever positive effect on the steel and aluminum producers, the smelters and refineries.”

There are also reasons to think the impact might be worse for metal users this time.

U.S. manufacturing is in a delicate state, muffled by high interest rates and a strong dollar that makes exports less competitive. Unemployment remains low, and as the Trump administration cracks down on immigration, labor may get more expensive. Steel and aluminum prices spiked during the Covid-19 pandemic and haven’t yet fallen to their previous levels.

That’s why additional tariffs could have a greater impact — especially if they end up stacked on top of across-the-board tariffs on Canadian imports, which Mr. Trump has said could take effect on March 1.

“It contributes to a number of things that are already putting stress on a tight macroeconomic situation,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

Cans, Houses, Cars

For an idea of which industries could be most affected by new tariffs, it’s helpful to look at how important steel and aluminum are to their production.

As part of its report on the impact of the 2018 Trump tariffs, the International Trade Commission ranked industries by their dependence on the two metals. A type of business that uses the most steel is motor vehicle metal stamping, at 58 percent, with other components of auto manufacturing also using quite a bit.

While much of the steel that auto manufacturers use is produced in the United States, those companies and their suppliers also depend on specialized alloys that are available only from overseas producers. Virtually all automakers would be affected, including Tesla, which in 2023 petitioned for an…