How updated U.S. import tariffs affect the metals industry

Tariffs revised in 2018 under Section 232 called for a 10-25 percent duty on imports of steel and aluminum from certain countries. However, the EU, UK, Canada, Mexico, Argentina, Japan, Australia, and Ukraine were shielded from these restrictions.
 
On February 10, 2025, President Donald Trump's directive to impose an ad valorem 25 percent tariff worldwide will include the above U.S. allies. If passed into law, the legislation would become effective from March 12 of this year.

The announcement's effect began almost immediately as metals manufacturers, traders, and other relevant sectors turned cautious in a growingly ambiguous market environment. Several questions have been raised. Do these duties pertain to primary metals or also to recycled metals? Is there enough smelting capacity in the U.S. to meet growing demand? Will these restrictions boost domestic production?

Tariffs on recycled materials clarified

On February 14, 2025, the Recycled Materials Association's (ReMA) statement reiterated that recycled aluminum and steel will remain excluded from Section 232 tariffs.

The revised duties are in retaliation to allied countries that levied tariffs on U.S. exports up to 130 percent, in some cases. Most countries also misused the Section 232 privileges by material re-classification to evade duties. Key players in the U.S., like Century Aluminum, laud the new legislation. Jesse Gary, CEO of Century Aluminum, welcomes new tariffs, citing that these will level the playing field for domestic companies.

Section 232 of the Trade Expansion Act of 1962 is a U.S. legislation allowing the president to limit imports due to national security threats. In March 2018, during his first term, President Donald Trump imposed a 25 percent tariff on steel and a 10 percent tariff on aluminum imports, effectively protecting these industries. According to a White House factsheet published on February 11, even though exemptions were granted earlier, countries with excess capacity had begun to export inferior material to the U.S..

The renewed tariff aims to attain a sustainable domestic capacity utilization rate of 80 percent, up from 77.3 percent for steel and 55 percent for aluminum in 2022-2023. The measure ensures that the U.S. does not lose access to Canada's recycled steel and aluminum, which amounted to 3.28 million metric tonnes and 626,960 metric tonnes, respectively, in 2024.

Retaliatory measures

Global steel manufacturers associations have called for retaliatory measures to safeguard domestic supply chains. Canadian Steel Producers Association president Catherine Cobden noted that the recent trade proposals undermine terms under the United States, Mexico, and Canada Agreement (USMCA).

According to a statement from the Mexican Chamber of Iron and Steel Industry (Canacero), the U.S. benefits more under the USMCA than Mexico. The trade surplus through steel exports (to the U.S.) in 2024 was about 2.4 million metric tonnes or $4 billion. The Latin American Steel Association (Alacero) stated that countries in the region need to strengthen their domestic steel supply chains.  
   
The European Commission plans to impose several protection strategies for the EU steel industry in Europe as soon as April this year. Several of these measures also arise from the need for the industry to overcome the continued recession since Russia's war on Ukraine. Other factors, like rising energy costs, have also resulted in the need for more safeguards.

Meanwhile, Turkey's government remains confident about future trade ties with the U.S.. The country aims to become a more relevant geopolitical player and overcome quotas for imported recycled materials.

Understanding the impact

According to Charles Johnson, CEO of the Aluminum Association, President Trump's revisions to Section 232 in 2018-2019 benefitted the U.S.. Nearly $10 billion worth of new investments were made to enhance aluminum production. However, as industrial production continues to gain momentum, Johnson feels that the domestic smelting capacity, at present, is insufficient to meet consumption. Moreover, according to market participants, even though recycled steel and aluminum products are exempt from the new tariffs, primary metals prices could increase until March.

There will be significant disruptions in the European steel and aluminum sectors in the event of tariffs. Market participants believe that primary steel and aluminum prices could gain momentum, undermining sustainable production processes and leading to buyers switching markets from the U.S.. Excess domestic supply exacerbated by weak domestic demand might also pressurize prices. The U.S. accounted for nearly 309,000 metric tonnes of metal imports from the EU in 2024.

In Asia, the landscape isn't different. South Korea is the fourth largest steel exporter to the U.S., below Canada, Brazil, and Mexico. The country exported up to 70 percent or 2.63 million metric tonnes of specialty steel products to the U.S. in the last three years, primarily because of tariff-free quotas. Several Korean manufacturers in the U.S. may have to cut back production owing to import bans.

India's rating and research agency ICRA has forecasted that exports from Japan and South Korea would go to India, downgrading price levels in the country. Chinese exports may move to neighbouring countries. Every region will find a way to avoid or reduce the effect of tariffs on their economies and companies, offsetting any fallout but disrupting the whole industry.

More clarity required

Several market participants concluded that although the current sentiment is cautious, any real impact of these new tariffs will become apparent after Q2 2025. Associations like Alacero remain firm in the need for Latin American nations to impose similar trade protection measures to remain globally competitive. Another factor to be acknowledged is that every affected country will likely roll out similar retaliatory tariffs. Countries that ignore the repercussions could be exposed to significant oversupply risk.

Hugo de la O Ramos is an analyst at Davis Index. He can be reached at hugo.ramos@davisindex.com.