In a significant trade policy move, President-elect Donald Trump has threatened to impose 25% tariffs on imports from the US’s top suppliers, Canada and Mexico. This proposal has raised concerns, particularly for the US steel and aluminum industries, as both countries are major sources of these essential metals. According to analysts from Citigroup, this policy could dramatically increase the prices of steel and aluminum across the United States, having widespread implications for manufacturers, consumers, and the overall economy.
The United States imports a substantial amount of its steel and aluminum. Around 70% of the aluminum used in the US is sourced from foreign markets, with 60% of that coming from Canada alone. Similarly, steel imports account for 24% of the domestic supply, with Canada providing approximately a quarter of that and Mexico contributing about 15%. These figures highlight the critical role that both countries play in the US metals supply chain. If Trump's tariff proposal is enacted, analysts predict that steel prices could rise by $100 to $150 per short metric ton, while aluminum prices could see a sharp increase in the Midwest premium, potentially more than doubling to 50 cents per pound above London Metal Exchange prices.
The immediate consequence of these tariffs would be higher production costs for US manufacturers, particularly those reliant on steel and aluminum. Industries like automotive manufacturing, construction, and aerospace, which depend heavily on these metals, could face increased operational costs, leading to higher prices for end products. For the aluminum industry, the Midwest premium, which reflects the regional cost of delivering aluminum, could rise significantly, benefiting domestic smelters but disadvantaging downstream manufacturers. However, experts warn that reconfiguring supply chains to mitigate these impacts could take years, potentially slowing down the manufacturing process in the short term.
The proposed tariffs could also disrupt existing supply agreements and create uncertainty in the market. During Trump’s first term, a similar tariff strategy caused steel buyers to stockpile supplies in anticipation of rising prices, a pattern that could repeat itself under this new plan. Investors in the metals market may take a cautious approach, unsure of whether these tariffs are a permanent shift in policy or just a temporary negotiating tactic. This uncertainty could lead to volatility in steel and aluminum prices as businesses and investors try to anticipate the future direction of trade policy.
On the other side, Canada and Mexico are already considering their responses to the proposed tariffs. Mexican President Claudia Sheinbaum has indicated that her government might impose retaliatory tariffs on US exports, which could worsen the situation for US manufacturers. Citigroup analysts pointed out that the US is a net exporter of steel to Mexico, particularly in the form of sheet products. Any tariffs imposed by Mexico could therefore have a greater negative impact on US mills, especially those involved in producing sheet steel, as it would limit their ability to export to one of their largest markets.
For Canada, the economic stakes are also high. The US is Canada’s largest export market for metals and minerals, with aluminum, iron, and steel accounting for almost half of the country’s metal shipments. In 2022, Canada exported approximately C$59 billion, about $42 billion, in metal ores, minerals, and related products to the US. These exports are vital to Canada’s economy, and any tariffs or trade restrictions could damage the profitability of Canadian metal producers, leading to economic consequences that would also ripple through the US market due to the interconnected nature of North American trade.
The proposed tariffs and the potential for retaliatory actions have created a sense of urgency in the metals sector. While the immediate effects might be seen in higher prices for consumers and manufacturers, the long-term ramifications could include significant shifts in the North American steel and aluminum supply chains. Companies will likely need to consider alternative sourcing strategies or look into investing in domestic production to offset the higher costs of imports. However, the logistics and investment required to shift these supply chains could prove challenging, especially for smaller manufacturers who are more vulnerable to price fluctuations.
As the situation develops, industry stakeholders will closely monitor the evolving trade relationship between the US, Canada, and Mexico. The outcome of these proposed tariffs could reshape the dynamics of the North American metals market, influencing everything from production costs to trade balances and international relations. With President-elect Trump set to take office in January 2025, the steel and aluminum industries may face a period of uncertainty as businesses, governments, and investors prepare for the impact of these potential tariffs.
