United States / Analyst Insights
How Steel and Aluminum Tariffs are Affecting US Industries
by Jonathan Hadad Analyst
Oct 02 2018

In early 2018, the United States implemented tariffs on foreign-made steel and aluminum, with the purpose of protecting the domestic industries by moving demand away from imports. The tariffs were implemented following months of rhetoric by president Donald Trump—during both his campaign and presidency—and has facilitated reciprocal tariffs from several trade partners. The run-up to the tariffs and the resulting price shifts are both affecting industry performance. IBISWorld takes a look at both the immediate and short-term impacts of the aluminum and steel tariffs. The currently proposed US-Mexico-Canada Agreement does not reverse the steel and aluminum tariffs; however, the tariffs will still be a key point of negotiations.

Steel

2018 is forecast to be a strong year for the Iron and Steel industry in the US (IBISWorld report 33111). According to the latest IBISWorld estimates, the industry is expected to generate more than $113.3 billion this year, an increase of 14.8% since 2017. The strong performance comes as the domestic price of steel is forecast to increase to a five-year high. Although demand for steel from downstream markets (including the nonresidential construction and automotive industries) is a key driver of industry performance, the upward movement in selling prices is expected to contribute most to the steel industry’s strong performance. Furthermore, IBISWorld estimates that steel exports are expected to rise at a faster rate than that of imports for the first time in the five-year period, indicating a growing appetite for US-made steel from foreign companies and lessened demand of foreign steel by US companies. Overall, the tariffs implemented at the beginning of the year has so far served the industry, as the US steel industry is benefiting from higher selling prices, which have come from a shift in demand away from imports (which now cost more for US buyers).

Aluminum

Similar to the US steel industry, the Aluminum Manufacturing industry in the US (IBISWorld report 33131) is expected to see strong growth in 2018. After experiencing revenue declines for three straight years from 2014 to 2016, the industry erased all losses after a strong 2017, on the heels of surging prices in aluminum. Aluminum prices are expected to continue trending upward, which will further fuel the industry’s rally. Also similar to steel, IBISWorld estimates aluminum prices will reach a five-year high in 2018. This is due, in large part, to the US government’s tariff on foreign-made aluminum, which artificially increases prices on imports. US buyers faced with higher purchasing costs from foreign producers turn back to the domestic industry, which contributes to rising prices for US-made aluminum. The shift in demand could be seen in the growth discrepancy between exports and imports. For the first time since 2011, exports are expected to rise at a faster rate than that of imports in 2018. Like the steel industry, this is an example of a shifting appetite to US-made aluminum.

steel and alum charts

In 2018, performance for the US steel and aluminum industries is expected to trend similarly. While neither industry has made significant internal changes to better operating conditions, both industries are seeing the US government’s tariffs as a key driver in their rallies. The tariff on foreign-made steel and aluminum shifts demand back to US-made goods, by artificially raising the prices of foreign-made competitors. The positive influence on each industry is irrefutable at this point; both industries are expected to experience rising revenue in 2018 (coming after a particularly difficult five-year period), as trade is expected to be more balanced in the coming years. The length that these tariffs will be in place is unknown, but trade agreements are subject to change as country-specific deals evolve.

Industry Effects: 

Aluminum Manufacturing industry in the US

Iron and Steel industry in the US