President Donald Trump’s announcement of 25% tariffs on steel and aluminum imports marks more than just another trade policy —it signals the potential revival of his first-term economic nationalism, this time with sharper teeth.
The new measures take effect on Wednesday, launching another offensive in Trump’s trade war. For Chinese imports, the metal tariffs will stack atop existing 20% duties—a one-two punch that would have hit Mexican and Canadian goods had the threatened tariffs on their goods not been rolled back.
The runup to the tariff deadline came with some drama on Tuesday as Trump threatened Canada with doubling the duty to 50% on its steel and aluminum exports to the U.S. But Trump backed off those plans after a Canadian official also receded his own plans for a 25% surcharge on electricity.
It will not be the first time Trump has placed tariffs on steel and aluminum, both of which are crucial for industries like construction and manufacturing. In 2018, during his first term, Trump imposed a 25% tariff on steel and a 10% tariff on aluminum imports.
Both then and now, the Trump administration said its goals were to protect domestic steel and aluminum makers in the U.S. on national security grounds, as well as boost domestic production and create more jobs.
Some of those goals were achieved last time: domestic production of these metals rose, as did employment in metal manufacturing industries, albeit briefly. But the 2018 tariffs also had negative downstream effects on the industries that require these metals as inputs. The currently planned tariffs are even more extensive — this round has higher rates and includes finished metal products as well as raw materials. While their impacts remain to be seen, we can look to what happened the first time for clues of what to expect.
Prices rose — at first
Both aluminum and steel prices had been increasing in the first years of the first Trump administration, but the anticipation and subsequent imposition of the tariffs on these metals caused their domestic prices to pop up more dramatically. U.S. steel prices rose 5% in the month after tariffs first went into effect and aluminum rose 10%.
After only a few months, U.S. aluminum prices began to fall, soon followed by the price of domestic steel. However, the gap between U.S. and worldwide prices for both remained wider than it had been pre-tariffs. The prices also decreased more slowly than they had risen, especially for steel, which had been tariffed at the higher 25% rate. U.S. steel did not return to its pre-tariff price until January 2019.
By mid-2019, the tariffs were lifted for Canadian and Mexican imports, which accounted for 27% of the U.S.’s steel imports and 43% of its aluminum imports. The Biden administration later ended tariffs on European Union metals in 2021, amid record-high steel prices fueled by COVID-19 supply chain disruptions.
Metal production picked up, but higher costs slowed other industries
The falling prices for aluminum and steel were in part thanks to domestic production of aluminum and steel picking up. Compared with 2017, the U.S. increased its production of steel by 6 million metric tons in 2019 and aluminum output by 350,000 metric tons. “Tariffs can encourage U.S. steel and aluminum producers to ramp up capacity or restart idled plants,” said William Hauk, a professor of economics at the University of South Carolina who specializes in international trade economics.
However, said Hauk, expanding domestic production capacity takes time and capital. Though domestic production of steel and aluminum increased, it did not happen fast enough to bring prices back down quickly. The enormous cost and limited availability of electricity needed to power the smelters, for aluminum in particular, was a significant headwind. This lag was a major reason, said Hauk, that Trump lifted the tariffs on Mexico and Canada in June 2019.
Meanwhile, overall higher prices meant higher input costs for sectors like manufacturing, construction and transportation — major sources of demand for these metals — contributing to reduced growth after the tariffs were imposed.
This impact is not surprising, according to Hauk. “Higher input costs,” he said, can result in “both higher prices for consumers and reduced output.”
Job creation was a mixed bag
The tariffs on metal imports did contribute to the creation of jobs in the metal production industry. The number of people working iron and steel mills as well as those in aluminum production rose from 2017 to 2019 by 6% and 5%, respectively.
However, as with metal production, these modest gains were not sustained for long. After the tariffs against Canada and Mexico were removed, the remaining restrictions were not enough to boost metal processing employment in the face of a shortfall in domestic demand thanks to pandemic-related disruptions in 2020 and 2021.
The increase in domestic steel and aluminum prices also adversely affected employment in industries that depended on them as an input for production, such as manufacturing. A 2019 Federal Reserve study estimated that higher input costs from the 2018 tariffs reduced manufacturing jobs, relative to what it would have been without tariffs, and raised production costs for metal-based goods.
Other studies had similar findings, including one from 2020 that estimated that the increased costs driven by the tariffs may have resulted in as many as 75,000 fewer manufacturing jobs.
Tariffs mean trade-offs
The short-term boosts that the 2018 tariffs gave to the domestic metal processing industry in the U.S. came at the cost of higher domestic prices for these metals, which had downstream negative effects on the industries that relied on them.
It seems likely this most recent round of metal tariffs will have similar impacts, which will likely be amplified by the other trade tariffs the Trump administration has already implemented or plans to implement in coming months. In fact, a recent poll showed recession concerns on the rise, thanks to the tariffs, though Trump has waved off concerns, saying that the U.S. economy is “in transition.” We will have to wait for data in the coming months to know for sure what the impacts will be.
