President Trump successfully defused a retaliatory action by Ontario on Tuesday with his threat to unload all his heavy tariff ammunition against Canada, including 50% tariffs on imports of Canadian steel and aluminum. However, 25% Trump tariffs took effect at midnight on Canada and all other U.S. suppliers. Still, the S&P 500 is bouncing higher after closing at a six-month low on Tuesday.
U.S. steel and aluminum stocks such as Nucor and Alcoa remained in rally mode on Wednesday, helped by a tame consumer price index reading that could give the Federal Reserve leeway to cut interest rates soon.
But other industries stand to be hurt by the higher prices and retaliation. The European Union announced retaliatory tariffs on $28 billion worth of imports from the U.S. starting in April.
Trump Tariffs On Steel, Aluminum
President Trump already imposed a 25% tariff on steel imports in 2018. However, most steel imports to the U.S. have been shielded from this tax through a series of agreements with trading partners. Trump later exempted imports from the biggest source of steel imports: Canada, Brazil and Mexico. In other deals, Trump and former President Biden set quotas for the U.K., European Union, South Korea and Japan, partially shielding them from tariffs.
His Feb. 10 executive order lifted all of those exemptions and quotas, imposing the full 25% tariff on all steel imports, effective March 12.
Meanwhile the 10% tax imposed on aluminum imports in Trump's first term jumped to 25%. In addition to the much-higher Trump tariff rate, Century Aluminum said it would apply to the nearly 75% of imports that entered the U.S. duty-free due to a loophole.
An analysis co-authored by Simon Evenett and Johannes Fritz of the St. Gallen Endowment for Prosperity Through Trade finds that Trump's steel and aluminum tariffs also would apply to $151 billion in imports of products composed of steel and aluminum, including auto parts, machinery, cooking utensils and sports gear.
EU Retaliation
European Union retaliatory measures are set to take effect in April in two waves. On April 1, the EU will impose tariffs on imports of products including bourbon, Harley-Davidson motorcycles and Levi Strauss blue jeans.
Tariffs that could take effect in mid-April would aim at agricultural products.
Canada Backs Down
Trump's escalation threat came after Ontario's premier, Doug Ford, followed through on a threat to add 25% to the cost of electricity shipped to about 1.5 million U.S. customers. Ontario serves customers in New York, Michigan and Minnesota, according to a CBC news report. Later, Ford said he would suspend the electricity surcharge after an agreement with Commerce Secretary Howard Lutnick to renew trade negotiations.
Beyond the threat to immediately double tariffs on Canadian steel and aluminum, Trump warned that he would next take aim at Canada's auto sector. After reversing course last week, opting to withhold 25% tariffs on auto imports from Canada for at least a month, Trump said Tuesday he's prepared to substantially increase tariffs on April 2 and "permanently shut down the automobile manufacturing business in Canada."
Trump's post also demanded that Canada "immediately drop their Anti-American Farmer Tariff of 250% to 390% on various U.S. dairy products."
To top it off, Trump made another pitch for Canada "to become our cherished Fifty First State."
Trump Tariffs Impact On Steel, Aluminum Sectors
Steel coil futures prices are trading around $930 per ton, up from around $800 per ton before Trump's Feb. 10 executive order.
Steel industry capacity utilization has fallen to around 70% after rising above 80% after the initial imposition of Trump tariffs in 2018. That suggests plenty of excess capacity, if imports were to slow.
Brad Setser, senior fellow at the Council on Foreign Relations, posted last month that aluminum output is more constrained. "Imports from Canada in particular are essential for the primary aluminum market in the U.S."
Because an increase in aluminum smelting capacity "takes time and may take more than a 25% tariff," Setser sums up the impact as "short-term pain for no short-term gain."
Steel, Aluminum Stocks
U.S.-based steel and aluminum stocks are mostly higher for a second straight day. Steel Dynamics rose 1.3%, Alcoa 1.9% and Century Aluminum 3%. However, Nucor slipped 0.8%.
Meanwhile, General Motors and Ford Motor both lost around 1.5%. Both companies are big steel and aluminum users and would face significant supply chain shocks if Trump targets Canada's auto-related manufacturing.
S&P 500
The S&P 500 bounced 0.7% in Wednesday morning stock market action. That follows a 3.4% two-session loss that left the S&P 500 about 9.4% below its record closing high on Feb. 19.
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