Clark Packard and Alfredo Carrillo Obregon
In another fit of economic illiteracy, President Donald Trump last month announced the imposition of 25 percent “national security” tariffs on all steel and aluminum imports. On March 12, they went into effect, essentially eliminating all existing exemptions, reverting previously granted quotas back to tariffs, and raising the tariff rate on aluminum from 10 percent to 25 percent. In another spasm of hot-tempered and ill-advised policymaking, meanwhile, President Trump yesterday (March 11) threatened to raise tariff rates on Canadian steel and aluminum to 50 percent before later backing off.
Legal and economic problems abound.
Erosion of the Rule of Law
The Trump administration’s first-term steel and aluminum tariffs were imposed under Section 232 of the Trade Expansion Act of 1962, which allows the United States to restrict imports to protect national security. The tariffs were imposed even though the Secretary of Defense at the time, James Mattis, noted that the US military only needed three percent of total domestic steel and aluminum production at the time. Those “national security” tariffs were a flagrant abuse of Section 232. Simply put, there was no national security rationale for restricting imported steel, especially from allied countries. The steel tariffs were little more than rank protectionism for the domestic steel and aluminum industries.
The Trump administration’s latest steel and aluminum tariffs utilize the same statute in an equally flimsy way. After Ontario premier Doug Ford imposed (then withdrew) a 25 percent surcharge on electricity shipped from his province to New York, Michigan, and Minnesota in retaliation for the Trump administration’s separate across-the-board tariffs on Canada (and Mexico), President Trump announced the doubling of tariffs on all Canadian steel and aluminum to 50 percent. White House Press Secretary Karoline Leavitt told reporters the president’s action was based on “egregious and insulting” comments by Doug Ford. The two sides paused their tariffs and reprisals pending in-person discussions this week.
Section 232 is a serious statute meant to be used sparingly and with extreme caution, not a plaything to settle petty grievances. Using it as such marks another episode in an increasingly long line of shameful abuses by the Trump administration and a further erosion of the rule of law in US trade policy.
Lousy Economics
As we noted last week, steel prices were rising even before the latest tariffs took effect. Since the announcement, hot-rolled steel has increased by nearly 9 percent, while cold-rolled steel has increased by 20 percent. Some domestic steelmakers are raising their prices above those of foreign imports.
These increased prices come on the heels of a New York Federal Reserve survey finding that costs for manufacturers climbed at the fastest pace in two years. American manufacturers are paying hefty premiums for aluminum, steel, and copper relative to their foreign competitors, a trend that Bloomberg reports is “sapping business confidence and stoking worries about inflation even before tariffs on metals come into effect.”
Bloomberg calculates that US aluminum consumers are paying about 23 percent more than those in Europe, 40 percent more for steel, and 10 percent more for copper.
Simultaneously, tariffs are creating massive uncertainty in the broader economy (Figure 1). Investors are clearly bearish about such duties and the administration’s cockamamie theory that they offer short-term pain for long-term economic growth. Meanwhile, only 12 percent of small business owners surveyed by the National Federation of Independent Business (NFIB) in February expressed that it was a “good time” to expand their business—a five-point decline from January, representing the largest one-month drop since April 2020. Those surveyed identified inflation—including higher input costs—as the second-biggest issue they must deal with, only behind labor quality. As 88 percent of small businesses rely at least to some degree on imported goods, additional tariffs, particularly on upstream products such as steel and aluminum, will very likely exacerbate the cost pressures they face.
President Trump’s decision to revoke exemptions previously extended to select US trading partners is particularly shortsighted given the sheer magnitude of trade covered by the tariffs. For instance, five of these trading partners—Canada, the European Union, Mexico, Brazil, and South Korea—were the top US sources for imports of the dutiable steel products last year, accounting for nearly 75 percent of US total imports of such products (Figure 2). In the case of aluminum, Canada alone accounted for almost half of US imports of the goods covered by the tariffs last year (Figure 3), with Canada accounting for more imports than the next 23 US trading partners combined.
Imports from Canada and Mexico—and US companies that rely on these goods—might be in a particularly precarious situation, as many of these imports could be subject to an additional 50 percent tariff. That’s because, in addition to being hit with the 25 percent Section 232 levies, such imports could also be on the hook for the 25 percent tariffs implemented last week under the International Emergency Economic Powers Act (IEEPA).
Although the Trump administration exempted imports entering under the US-Mexico-Canada Agreement (USMCA) from these duties, a substantial share (Figure 4) of imports covered by the Section 232 duties from Canada and Mexico—including 100 percent of covered steel products from both countries and 80 percent of covered aluminum products from Canada—entered the United States without receiving USMCA preferential treatment in 2024. Moreover, a large share of those non-USMCA imports are products for which US most-favored-nation (MFN) tariff rates are zero, and the US tariff code does not specify a “special” rate of duty. Unless importers of those products can figure out a way to show “compliance” with USMCA, they won’t qualify for Trump’s IEEPA tariff exemption, and their products will be heavily tariffed.
These facts debunk the Trump administration’s “economic security as national security” argument. Absent a clear defense-related imperative, is it in America’s interest to increase costs on a multitude of American businesses to further protect two industries that employ far fewer workers and contribute far less to national GDP? Does further stoking already-elevated fears about the economy’s trajectory serve any discernible useful goal? Are trade conflicts with close US allies and long-standing trading partners and the reneging on previously negotiated agreements really the ingredients of a rekindled American greatness?
The answer to all these questions should be an unequivocal no. Unfortunately, that does not seem to be the thinking of an increasingly erratic White House.