What to make of Donald Trump's tariffs on steel, aluminum

"The beginning of making America rich again." 

That's how US President Donald Trump described his decision to levy 25% tariffs on all steel and aluminum imports into the United States.

Trump signed proclamations at the White House on Monday that will take effect in March and will apply without exception to steel and aluminum arriving from all countries.

The measures are the latest in a long line of tariff threats made by the president since he returned to office last month.

Many economists, however, disagree that Trump's tariffs mark the beginning of a new "Golden Age" for the United States and reject his assertion, while signing the proclamations, that foreign exporters — not ordinary Americans — would bear the brunt of the tariffs.

"The literature on this is abundantly clear," Abigail Hall Blanco, an associate professor of economics at the University of Tampa in Florida, told DW. "Tariffs mean major losses, for all parties involved."

While the new levies are intended to bolster domestic steel and aluminum producers, experts believe US industries that rely heavily on metals, such as automotive and construction, will face increased production costs.

Those costs will almost certainly be passed on to US consumers, reigniting inflation at a time when policymakers are hell-bent on pushing it lower.

Meredith Crowley, a professor of economics at the University of Cambridge in the UK, thinks low-income Americans, who in large measure voted for Trump, will experience "the most harm from all of these tariffs."

"If you're someone who's just struggling to pay for the not-very-good car you have right now, it's a much heavier burden. If the price of an auto goes up by $1,000, your family just won't be able to buy one," Crowley told DW.

Imports often cheaper than domestic players

The US steel and aluminum sectors face several structural challenges that have left them struggling to compete with foreign rivals, including high production costs, outdated infrastructure and limited capacity.

While the US isn't too reliant on supplies from China, the Asian country's dominance of both industries has created overcapacity. The world's second-largest economy produces over 50% of the world's steel and 60% of its aluminum, at prices often subsidized by the state. 

“We [US manufacturers] often import steel from places like China into the West Coast of the United States. Why? Because it's cheaper than taking steel from the East Coast and transporting it to the West Coast," Hall-Blanco explained.

First-term tariffs hurt US jobs

During his first term, Trump's tariffs on steel, aluminum and China did help boost domestic production of the metals. However, a US Federal Reserve study estimated that jobs across the manufacturing sector fell by 1.4%.

The same study found that job losses were felt most strongly among producers who were more exposed to the tariff increases, as they faced rising input costs and retaliatory tariffs.

Oxford Economics estimated in 2021 that the trade war during Trump's first term took half a percent off US gross domestic product (GDP) and cut real incomes by $675 (€654) per household.

Similar steel tariffs imposed by the US in 2001 also caused lower demand among domestic as well as foreign manufacturers, which led to tens of thousands of layoffs.

"US domestic producers had to reduce employment because they couldn't produce [enough] cars [due to a lack of imported steel.] That was one of the things that incentivized President George W. Bush to start removing steel tariffs," Crowley said.

Canada set to fair worst

Canadian Prime Minister Justin Trudeau, whose country will be impacted the most by the new metal tariffs, labeled the penalties "entirely unjustified" and said Ottawa would "resist strongly and firmly."

Last year, Canada was the largest steel exporter to the US — with some 6.6 million tons — followed by Brazil, Mexico, South Korea and Vietnam, according to the American Iron and Steel Institute.

Canada is also the largest exporter of aluminum to the US. At 3.2 million tons last year, Canadian imports were twice those of the next nine countries combined, US government data showed. Other major US sources of aluminum are the United Arab Emirates, China, South Korea and Bahrain.

Around 25% of European steel exports go to the US, according to consultancy Roland Berger, including from Germany, the Netherlands, Romania, Italy and Spain, which led the European Union to vow Tuesday to protect its economic interests in the face of Trump's tariff assault.

Ursula von der Leyen, President of the European Commission — the bloc's executive arm — warned that "unjustified tariffs on the EU will not go unanswered — they will trigger firm and proportionate countermeasures."

Crowley said Trump may get a "political win" if he can force the EU, which levies a higher tariff on imported cars than the US, to cut its vehicle tariff.

"He's thinking about industry-by-industry deals ... making it look like he's cracked open a market by getting the European Union to cut tariffs," she told DW.

Some exporters hope for exemptions

As well as readying retaliatory measures, several countries — including Australia — have called on Trump to allow exemptions for their metals exports. The US president said he would give "great consideration" to Australia's request for an exemption due to the country's trade deficit with the US.

The Times newspaper cited officials as saying that the UK government hoped to negotiate an opt-out from the tariffs. The country is not expected to retaliate over Trump's move, although measures have been drawn up.

Indian Prime Minister Narendra Modi, who is due to meet Trump at the White House this week, has already cut tariffs on dozens of imported goods and is reported to be preparing additional cuts in an attempt to appease Washington.

India imposes tariffs that are typically between 5 and 20% higher than the US on 87% of imported goods, according to data from Global Trade Alert.

Ukraine, meanwhile, hopes it can also sidestep the tariffs, possibly in a deal over rare earth elements, badly needed by US technology firms, including for the production of electric vehicles. Ukraine's metal products made up nearly 58% of exports to the US last year, worth $500 million.

"In 2018, there were deals made with Argentina, Brazil and Australia. So, there is still room for negotiation ... there will be exemptions for some countries for sure," Inga Feschner, senior economist for Germany and global trade at Dutch bank ING, told DW.

Edited by: Rob Mudge