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Stock Analyst Update

What Impact Could Steel and Aluminum Tariffs Have?

We still expect the tariffs set to be imposed next week to be targeted, but a more blanket increase would have major impacts on both U.S.-based manufactures and potentially the broader economy.

After meeting with steel and aluminum executives at the White House on March 1, President Donald Trump announced that he'll be enacting a 25% steel tariff and a 10% aluminum tariff next week. It is unclear, however, if this approach will be applied in a blanket fashion to all countries or only to a targeted list of countries. This is a critical distinction, because we'd view a blanket approach as far more severe and, in turn, far more beneficial for the prospects of U.S. steel and aluminum producers. Our base-case expectations for U.S. steel prices, margins, and shipment volumes continue to assume that final sanctions will be targeted. If Trump instead pursues a more widespread approach, we'd probably increase the fair value estimates for the U.S. steel and aluminum producers we cover.

In its Feb. 16 Section 232 report, the blanket tariffs proposed by the U.S. Department of Commerce were 24% for all steel imports and 7.7% for all aluminum imports, both less severe than the figures indicated by Trump on March 1. However, the agency had also recommended 53% targeted tariffs for steel and 23.6% targeted tariffs for aluminum. Therefore, the actions proposed by Trump could be viewed as more punitive or significantly less punitive than the recommended sanctions depending on their scope.

There has reportedly been significant disagreement among Trump's advisors as to how severe the resulting tariffs should be. On one hand, trade hawks, including Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer, and trade advisor Peter Navarro, have pushed for steep tariffs and quotas, while others, including Chief Economic Advisor Gary Cohn have supported a less heavy-handed approach. Steeper tariffs increase the risk of retaliation from trading partners as well as unintended negative effects on the profits of U.S. industries that are heavy steel consumers.

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