French credit insurance group Coface expects prices in the US to rise as a result of US President Donald Trump’s 50% tariffs on European steel and derivatives.
In the medium term, increasing domestic metal prices could affect manufacturing margins, especially within the US automotive industry. Ironically, this rise in US tariffs may end up helping Mexico in the long run. The majority of Mexico’s automotive exports to the US are duty-free since they comply with United States-Mexico-Canada Agreement regulations. However, because of the distortion in manufacturing costs compared with the US, now made worse by the recent new tariffs, Mexico’s automobile production is anticipated to become even more competitive.
“Washington continues to increase tariffs on steel and aluminum, squeezing the margins of American manufacturing companies without any certainty of revitalising its metals industry.” Coface analyst Simon Lacoume notes in a report obtained by Kallanish.
The announcement increasing tariffs on EU steel and aluminium occurred around the time of the launch of a strategic partnership between US Steel and Japan’s Nippon Steel. The Japanese conglomerate is set to allocate $11 billion towards manufacturing facilities in the US over the next 14 months (see Kallanish 16 June). This notable investment is partially a reaction to the initial 25% tariffs on steel implemented by the US government in March. From the perspective of the US, this investment fulfils multiple objectives: It aims to decrease reliance on imports whilst simultaneously bolstering the domestic metallurgical sector.
The tariffs implemented in 2018 however did not succeed in fostering sustainable growth in output or employment within US industries. A study conducted by the Board of Governors of the Federal Reserve indicates that the rise in input costs attributed to these tariffs is associated with the loss of 75,000 jobs within the domestic manufacturing sector.
This year’s imposition of tariffs has resulted in an increase in steel and aluminium prices within the US market. The S&P midwest premium index experienced an increase of 20% in January for steel. The long-term effects of tariffs on employment and productivity are not yet apparent. The increase in domestic steel prices has significantly impacted US manufacturing firms since 2018, the analysts note. The expected fluctuations in prices and rising costs are likely to create additional challenges for the downstream segments of the value chain.
Natalia Capra France
