Is this the start of a trade war?

President Trump announced a blanket 25% tariff on imported steel and aluminium from all countries. The tariffs will come into effect in March 2025. The US is the world’s biggest importer of steel, with Canada, Brazil and Mexico as the leading countries that import steel and aluminium into the US. President Trump announced the policy: "This is a big deal, the beginning of making America rich again,".  

Tariffs on steel and aluminium are a key part of Trump’s economic plan to increase the country's manufacturing base. They are an essential input in the production of cars, consumer electronics, construction, and packaging. It is hoped that tariffs on steel and aluminium will give US steel producers an important cost advantage in supplying these markets. With these cost advantages, US steel and aluminium producers will be able to increase their scale of production. It is forecast that the US tariffs on steel and aluminium could raise around $70 billion in revenue, which could be used to ease the US's budgetary situation. 

Trump’s aluminium and steel tariffs have a significant political aspect. His MAGA policies are often framed to appeal to middle-class Americans who work in manufacturing and feel tariffs are protecting their jobs. 

Some commentators have argued that Trump’s use of tariffs is a political tool to give the US government leverage with the governments of other countries to do what Trump's administration wants. For example, tariffs imposed on Mexico and Canada have been used to get the governments of these countries to reduce the flow of migrants and illegal drugs into the US. 

Tariffs on aluminium and steel may significantly affect US businesses and consumers. Firms that import steel and aluminium to use in production will face higher costs, which may filter through to consumers at higher prices. There could also be an efficiency loss as US steel and aluminium producers enter the market because of the tariffs, which are not efficient enough to compete under normal market conditions. Less efficient US steel producers replace more efficient Canadian and Mexican steel producers.  

The implications of the US steel and aluminium tariffs will not end in the US. Other countries will retaliate with their own tariffs against the US. The Chinese government has decided to impose 15% tariffs on US liquified natural gas and coal and a 10% tariff on crude oil, agriculture equipment, and cars.   

We could be heading into a world of protectionism, which runs counter to the benefits of free trade most economists believe in. It will be interesting to see what happens to different economies in the world due to Donald Trump’s introduction of trade barriers.  

Some discussion points

1. How will US steel and aluminium tariffs affect the market for steel in the US?

2. How will foreign steel producers be affected by US steel tariffs?

3. Why have the US government put tariffs on steel and aluminium?

4. Discuss the consequences of steel and aluminium tariffs on different stakeholders in the US economy.