As a result of the change, steel tariff undergoes a substantial increase from the earlier 2.95%. A paper by the Center for Strategic and International Studies, a Washington based think tank, tells US imports of steel and aluminium last year valued at an estimated $61bn had a share of 1.8% of total goods imports, raising doubts, if not concern about the move. But what did provoke Trump to do to steel and aluminium imports that would set off global outrage? The President does not hide his disappointment that the country will be using imports to meet close to 30% of domestic steel requirements, similar to the situation obtaining in 2018. This is happening in spite of adequate capacity available within the US. What is not acceptable to Trump is as steel imports remain at an elevated level, “the domestic industry’s performance has been depressed, resulting in capacity utilization rates persistently lower than the 80 percent target level.”

Trump, on his own admission, is driven by the conviction that in the pursuit of ‘make America great again’ (MAGA), he will do whatever is needed, irrespective of reactions of trade partners. The US is traditionally a major producer of steel and innovator of steel related technologies. Germany based data aggregator Statista figures show that the US steel industry had had a roller coaster ride in production since 2006 when the output was a high 98.2m tonnes. But because of the impact of coronavirus and the accompanying general economic downturn, production sank to 72.7m tonnes in 2020.

More recently in 2024, the US steel output slid 2.4% from the previous year’s 81.4m tonnes to 79.5m tonnes. Whatever the understanding of Trump, the process of globalization of the steel industry continues with groups in China, India and the European Union (EU) continuing to make cross-border investments in steel and supporting infrastructure. In line with that exercise, the Japanese Nippon Steel made a $14.9bn bid for US Steel in December 2023, promising at the same time billions of dollars of investment to replace the ageing infrastructure of the Pittsburgh headquartered storied steelmaker. President Biden blocked the Nippon bid mainly to placate the trade unions fearing job losses. But that did not deter Nippon from pursuing a different kind of arrangement for US Steel.

During the Japanese prime minister Shigeru Ishiba’s recent visit to Washington, a new deal on US Steel was proposed that instead of Nippon Steel seeking majority ownership of US Steel, it would “invest heavily” in Pennsylvania-based steelmaker. While the agreement on Nippon investment and involvement in management of operations of US Steel remains to be finalized, the Japanese company has let it be known that whatever be finally the shape of the agreement it would be “in line” with Trump’s focus on manufacturing, job creation and promoting investment in the US. The new Japanese prime minister who like his predecessor Fumio Kishida wants to be on friendliest possible terms with the US will likely ensure that Nippon Steel works with US Steel the way Trump wants.

Experts are not able to fathom as to why Trump is acting unilaterally on steel tariff instead of attempting to take allies such as the EU, the UK and Japan on board. His target may be the non-market China, which is found to be primarily responsible for the woes of the global steel industry. But as it turned out, Trump is putting the 25% duty on steel originating in any part of the world with no concession given to friendly countries. The impost is in addition to any existing tariffs. What the US President is doing with steel and also aluminium, making their imports dearer gives an idea of how radically the US trade policy is being overhauled to create a fortress out of America.

Even while a Trump objective is to force steel producing countries to desist from giving indefensible subsidies to steelmakers in various forms, resulting in building of surplus capacity and production, the fact remains China is not a steel exporter of significance to the US. The US steel imports were up 3.4% in 2024 to 26.5m tonnes from 25.6m tonnes in 2023. But because of the many trade barriers encountered since 2018, China could export only 508,000 tonnes of steel to the US last year or less than 2% of total American steel imports. The six major steel exporting countries to the US in 2024 were: Canada (6.39m tonnes), Brazil (3.49m tonnes), Mexico (2.85m tonnes), South Korea (1.53m tonnes), Germany (1.18m tonnes) and Japan (944,000 tonnes).

But 2024 was the year when Chinese steel exports at 110.72m tonnes, up 22.7% from 90.3m tonnes in 2023 turned out to be the highest since 2015. What was the net impact of highly subsidized Chinese steel exports? As such exports undercut producers in the rest of the world, steel prices remained low eroding producer margin. Expectedly, the torrent of Chinese supplies in an already surplus market inflamed global trade tensions with the EU, India and Japan, among others becoming blunt critics of Beijing seeking a solution to domestic excess supply by flooding the world market with its steel. South Korea and Vietnam had to seek protection for its steelmakers by putting anti-dumping duties on some Chinese steel products.

The point, however, remains that Trump action of slapping a steep duty will barely affect China since it has such little presence in US steel imports. But what is keeping steel prices low affecting industry profitability in free as well as non-market economies is the presence of oversized surplus capacity. WSA says the estimated world crude steel capacity of 2.432bn tonnes in 2023 exceeded global steel output by 543m tonnes. Furthermore, global steel excess capacity is projected to reach around 630m tonnes by 2026, more than the total steel production in all OECD countries.

The pitfall of Presidential tariff order in the form of retaliation by all affected countries could have been avoided had Trump administration made a joint move with its allies, including the EU to restrain non-market economies, particularly China from subsidizing the steel industry. In fact, a multilateral attempt was made back in 2018 by the EU and the US under the Global Arrangement on Sustainable Steel umbrella to build a tariff structure that would act as a disincentive for non-market economies to produce carbon-intensive and subsidized steel and aluminium. But negotiations did not make headway as the EU favoured a carbon border adjustment mechanism while the US stuck to its own tariff policy.

As the new US duty will have little, if any impact on voluminous Chinese export of steel, countries across the continents enraged by the American move have threatened reciprocal actions. No doubt, in the new acrimonious trade environment, several steel and aluminium exporting countries will have commercial disputes that will end up at World Trade Organisation (WTO) for resolution. But President Trump is convinced that his move will not only support about 80,000 jobs in the steel industry but it will also help in capacity revival and therefore, create new jobs. He, however, seems to be oblivious of the fact that such stiff tariff will be hurtful for steel downstream industries where employment is in excess of 12m will have to brace for price rises of products using steel. (IPA Service)

- To be concluded in the second part of the article at TRUMP’S TARIFF HIKE ON STEEL AND ALUMINIUM WILL HAVE LITTLE IMPACT ON CHINESE INDUSTRY