Mint Primer: Has Donald Trump just opened steel import floodgates?

So, Trump has targeted steel again?

Yes. In 2018, he imposed a 25% duty on steel and 10% on aluminium. It effectively kickstarted the trade war then. This time, he has gone for a 25% duty for both commodities without exceptions or exemptions and on all exporting countries. The tariffs will come into effect on 4 March and extend to downstream products that use foreign-made steel.

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Trump believes these measures, levied on national security grounds, will aid the struggling domestic manufacturers and incentivize foreign investment in America to enhance domestic steel and aluminium capacity and production. But what experts fear is a multi-front trade war.

What will be its impact?

The US imports 25% of its steel requirement, most of which comes from Canada, Brazil, Mexico and the European Union, free of any tariffs. In the case of aluminium, 70% of its needs are met by imports, mostly from Canada. These nations will face an immediate impact from the tariffs. It is not clear how these nations will react and whether they will retaliate in any manner. One thing is certain, analysts have pointed out, that these tariffs will increase the cost of steel within America from current levels of $775 per tonne to $900 per tonne.

Will India be affected?

Not much directly, as India does not export a large quantity of steel to the US. India exported just 95,000 tonnes of the commodity to the US in 2024, as against its overall production capacity of 145 million tonnes, according to Union steel secretary Sandeep Poundrik.

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However, the indirect fallout is expected to be significant and could hurt the already struggling Indian players if the government does not act.

How bad will the indirect fallout be?

In 2023-24, India, after many years, became a net importer of steel again. Large-scale imports, especially from China, have dampened domestic prices and hurt the profitability of the domestic payers. Trump’s recent measures will exacerbate the situation. Their export earnings will decline as global steel prices decline. Apart from that, most countries are expected to raise protections to safeguard their domestic industry, and this would hit export volumes. The Indian government, too, needs to act swiftly as imports are set to surge. The domestic steel industry has already sought protection from predatorily priced imports.

What about the aluminium sector?

India is the second largest aluminium producer after China, with an output of around four million tonnes. But compared to peers, its consumption is low. India’s per capita annual consumption is just two kilograms against the global average of eight kilograms. But demand is increasing, and imports are rising. The industry has been demanding protection. This tariff move will increase imports. Add to this lower exports. The domestic market will be flush with the commodity, causing aluminium prices to tank for local players.

Did Trump’s tariffs work last time?

No. Since 2018, when Trump first imposed tariffs on steel imports, domestic steel capacity has risen by just 6%. However, production has not registered any increase and is still below the 2019 level. The number of people employed in the US steel industry has not risen either. Studies show that these tariffs, on the contrary, cost jobs as steel consumers trimmed workers as higher prices hurt their profit margins.

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The US aluminium production in 2024 was the lowest in the last 100 years. Like last time, many expect Trump to use these tariffs as a bargaining tool.