Steel and aluminum tariffs are back to 25%. Is President Trump’s executive order beneficial or harmful for the U.S. economy and the metal industry? 

Well, it depends on who you ask. President Trump has imposed 25% tariffs on steel and aluminum imports effective on March 12, 2025. In the short term, this may increase inflation and market metal pricing; however, the demand for sourcing raw materials from U.S.-based steel and metal producers may increase to source lower-priced input materials. Domestic steel and aluminum producers could benefit through increased volume orders, which in turn, could positively impact their respective top- and bottom-line financials.

Throughout the metal supply chain, each business model — from casting and production to distributors, processors, and fabricators — will be impacted. If certain industry players proactively bought a surplus of inventory (and therefore, lower cost of goods sold) before the tariff effective date, they can benefit from selling at a higher market price today.

But first, let’s discuss how we got to where we are today.

What are the official imposed tariff percentages, and which metal substrates are affected?

On February 10, 2025, President Trump signed proclamations to close existing loopholes and exemptions to reinstate a 25% tariff on steel and elevate the tariff on aluminum to 25% from 10%. The new legislation also consists of key reforms, including eliminating all alternative agreements, applying strict steel “melted and poured” and aluminum “smelted and cast” standards, expanding tariffs to include downstream products, terminating all general approved exclusions, and cracking down on tariff misclassification and duty evasion practices.

Exemptions and quotas are being revoked, and the blanket 25% will be applied to steel and aluminum imports worldwide.

Why is President Trump imposing tariffs within his first 100 days in office?

President Trump has enacted over 80 executive orders within his first 100 days in office. To put that in context, he signed more executive orders within his first 10 days in office than any recent president has in their first 100 days.

President Trump has been vocal on his support for tariffs, arguing that they protect the United States’ critical steel and aluminum industries due to past harmful and unfair trade practices and overall global excess capacity.

Foreign nations have been increasing the volume of imports to the United States with cheap steel and aluminum, which is accelerated through subsidies by their own international governments. These “dumping” import actions can weaken the cost competitiveness of the largest four U.S. domestic steel producers: Nucor, Cleveland-Cliffs, U.S. Steel, and Steel Dynamics.

The entire metals supply chain is impacted by the cost of the metal input that the previous “upstream” metal business bought from their own supplier. If the raw material source is more expensive, then each metal industry player will need to charge a premium to the next user in the supply chain before the ultimate end user takes on a premium price hit.

Can the President do this with his sole authority?

Under Section 232 of the Trade Expansion Act of 1962, the President can sign executive orders to adjust imports of steel and aluminum to protect the United States’ national security.

Back in March 2018 during President Trump’s first time in office, he invoked his executive power under Section 232 of the Trade Expansion Act of 1962 to impose 25% tariffs on steel and 10% tariffs on aluminum imports, respectively. His proponents believed that these tariffs were effective in supporting not only recovery but also reinvestment in the American steel industry.

However, critics argued that there were many exemptions and loopholes that enabled circumventing tariff provisions, including denoting certain countries (e.g., Argentina, Australia, Brazil, Canada, Japan, Mexico, South Korea, the European Union, Ukraine, and the United Kingdom), which allowed bypassing the tariff provisions.

Do tariffs benefit the U.S. economy and metal industry?

Back in 2021, the U.S. domestic steel industry briefly achieved 80% utilization in 2021. With trade pressure through cheaper international imports and COVID-19 pandemic, domestic capacity utilization in 2022 and 2023 decreased to 77.3% and 75.3%, respectively. For aluminum specifically, capacity utilization declined from 61% to 55% between 2019 and 2023.

Previous tariffs imposed by President Trump spurred over $10 billion in investments to build domestic new mills. In February 2022, United States Steel Corporation broke ground in Osceola, Arkansas, to build a next-generation steel mill (Big River 2), which cost over $3 billion and was the largest private project in the history of Arkansas. This mill included two electric arc furnaces (EAFs) with 3 million tons per year of advanced steelmaking capability, state-of-the-art castings and rolling line, and advanced finishing capabilities.

In January 2022, Nucor Corporation announced the construction of its $2.7 billion EAF mills beside the Ohio River in Mason County, West Virginia. Several states were in contention for these constructions, including Texas, Mississippi, and Alabama.

How is the industry reacting?

Based on our recent M&A activity within the specialty manufacturing and metals industry and frequent interactions and conversations with key industry players, we see the industry expecting to take on higher metal prices for the foreseeable future. Also, supply chain stability and pricing control is top of mind for all metal supply chain users.

For context, in 2024, about 23% of all steel used in the U.S. was imported, and Canada, Brazil, Mexico, South Korea, and Vietnam were the biggest suppliers. When the new tariffs were publicly announced in early February 2025, steel prices and aluminum premiums skyrocketed. Specifically, the Midwest Premium for primary aluminum surged 45% to $0.40/lb., which is the highest level since the Russian invasion of Ukraine disrupted the international supply chain.

On an individual U.S. consumer sentiment basis, the University of Michigan’s consumer report indicated a decrease of 10% in January 2025. Additionally, the Conference Board’s Consumer Confidence Index fell for the third consecutive month to 98.3, marking the largest monthly decline since August 2021.

What will tariffs directly impact on financial statements and valuation?

The new tariffs will affect industry participants’ inventory costs and therefore working capital flexibility. When inventory costs increase, that requires more cash to be used to buy the same quantity as before tariffs. If a steel or aluminum manufacturer or distributor has an abundance of inventory purchased before the tariffs are implemented, which many companies proactively did with excess warehouse space, they can benefit from a lower cost of goods sold and sell for a higher market price.

Given the uncertainty and duration of the steel and aluminum tariffs and the potential for further tariffs (e.g., new metal substrates / processes and the percentage unknown), potential buyers may allocate a slightly higher risk (discount rate) on a company’s valuation, which may lower a company’s valuation.

However, not all is lost. If certain metal players proactively anticipated tariffs by buying excess inventory to have on hand and lock in long-term agreements (LTAs) with their customer base with the recent surge of market pricing, those company profits may be steady and even beneficial.

Where does the tariff money go?

The new 25% blanket tariff on aluminum and steel will be beneficial to the domestic steel and aluminum producers given the increased market prices. The actual tariff revenue will benefit the U.S. Treasury directly.

However, downstream manufacturing profits may tighten given that the costs of production, including freight, are expected to increase and push the consumer to pay higher prices for finished goods. Even though industry players across the supply chain may be able to increase pricing for the next user, recouping the dollar-for-dollar loss purchasing from the upstream players may not be feasible, which may erode profits.

What is going to happen to the economy going forward?

Time will tell. There is much uncertainty regarding the degree to which global tariffs on steel and aluminum will impact the broader economy in terms of M&A and financing activity. These “trade wars” might be relatively short lived. Many of the larger steel and aluminum producers and players are global players – either with locations across the world or with customers and suppliers in different countries than themselves. The whole supply chain depends on each other. 

Metal market pricing indices cannot go up forever; otherwise, the price would be too high to justify its end use. At some point, market pricing will come back to a normalized level. Whether it’s going to come back to historical averages within the next few months or take a few years is the question on everyone’s mind.