On May 4 the administration increased steel and aluminum tariffs by an additional 25%. This brings the current tariff rate to 50%, as the initial 25% percent tariff went into effect on March 12. There are no exemptions for imports from allies.
The US is the largest importer of steel and aluminum globally. About a quarter of the steel and half of the aluminum used in the US is imported. Canada is the largest supplier of raw steel and aluminum to the US.
Impacted products: The result of the tariff is that prices will increase for products made from steel and aluminum. These products fall into the following four categories:
- Construction materials (e.g. beams, frames, roofing, wall cladding and siding)
- Appliances (e.g. refrigerators, dishwashers, ovens, and washing machines)
- Manufacturing inputs (such as for air conditioner and machinery coils, hinges, and industrial steel drums)
- Consumer packaging (e.g. food and beverage cans)
Increasing domestic production is challenging: Although the intent of the tariffs seems to be to increase US production, the ability to quickly manufacture more steel and aluminum in the US is hampered by a number of factors. It takes five years or more to construct an industrial smelter (which is a furnace where raw materials are melted to separate metals). Smelters are crucial to the process of developing steel and aluminum material and products.
In addition, aluminum production is incredibly energy intensive. It takes 14,821 kilowatt-hours of electricity to make a ton of aluminum, according to the US Aluminum Association. This translates into a modern-size smelter needing more power than a city the size of Boston. With a substandard electric grid already strained by oncoming, AI-focused data centers, the necessary electricity for aluminum plants is largely unavailable.
The TCB take: For companies sourcing steel and aluminum, focusing on US sources first may save costs, but ultimately imported steel and aluminum is critical to US supply chains. For some products, a substitution for these materials may exist (such as plastic). However, for many uses metals such as steel and aluminum are required.
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