#aluminumtariffs

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Trump’s Steel and Aluminum Tariffs Economic Impact and Global Repercussions

US Tariffs on Steel and Aluminum:  

Double tariffs on imports of aluminum and steel have been announced by Donald Trump, the newly elected President of the United States. The tariffs would affect several countries but, in particular, Canada, which exports 90% of its steel and aluminum to the U.S. These measures by Trump have aggravated global trade tensions and raised fears that economic uncertainty will ensue; the manifestation of such uncertainty would be detrimental to Canada’s manufacturing, contributing almost 10% to Canada’s gross domestic product (GDP) and affecting the economy in recessionary scenarios.

Although the tariffs apply to imports from all countries, Canada will be the most impacted so far as the U.S. imports a larger amount of steel and aluminum from Canada than any other country. Moreover, aluminum imports from Canada are greater than the 10 countries combined. Increased tariffs are intended to buttress the U.S. manufacturing environment, but they saddle the rest of the world with dire unintended consequences: trade, supply chains, and key players in the industry.

Trump, who had promised the Business Roundtable that he would favor lower corporate taxes for companies manufacturing in the United States, was to address them when he announced his intention to impose tariffs on imports from several countries, including Canada, Mexico, China, and possibly more. This course of action is wholly contradictory to any assurances offered to that business group. A sizable corporate tax increase for companies operating in the United States, brought about by tariffs, would be worth far more than any gains from the proposed tax cuts.

Estimated Impact of President Trump’s Proposed Tariffs

Tariffs that were brought in 2018 due to national security will now be applied against key trading partners such as Canada and the European Union. The newest measures will likely take effect in March 2025 and apply to several metal-based derivatives. The EU has announced retaliatory tariffs on $28.33 billion worth of American goods, which heralds a swing toward trade conflict. Steel exports from India to the U.S. in 2024 amount to $450 million, and the related aluminum exports amount to $820 million, highlighting the wide-reaching effect of this policy globally.

The Indian Ministry of Commerce and Industry initiated a safeguards duty investigation on the 19th of December against the backdrop of a rise in the importation of steel by the country. According to major producers under the Indian Steel Association (ISA), this has been attributed to a steep and sudden increase in the imported volume of steel being a result of the 25% duty by United States President Donald Trump on steel during his first term.

Table: Estimated Impact of President Trump’s Proposed Tariffs

What if it were imposed on a permanent basis?

If imposed on a permanent basis, the tariffs would yield tax revenue to the federal government. In modeling the set tariffs, we input the interactions occurring among the different tariff rounds. The threatened tariffs are analyzed in isolation since it remains unclear as to how they will be applied; stacking in addition to existing tariffs or replacing those would cause the revenue to differ.

The dynamic revenue is less, as tariffs negatively impact US economic output and reduce the incomes and tax revenues. This drastic drop in revenue will worsen if foreign countries retaliate because retaliation would cause US output and incomes to shrink further.

As per the custom market insights analysis, the estimated 10-year conventional and dynamic revenue effects are as follows:

Imposed tariffs on China, Canada, Mexico (steel and aluminum): $1,523.3 billion conventional, $1,310.1 billion dynamic

Threatened EU Tariffs: $786.3 billion conventional and $679.2 billion dynamic

Threatened Motor Vehicle and Parts Tariffs: $404.7 billion conventional, $349.8 billion dynamic

Revenue Effects of President Trump’s Tariffs:

The revenue effects of tariffs by President Trump show that traditional estimates differ from dynamic estimates. This is because of the adjustments economic systems make whenever there is trade disruption. Conventional revenue effects refer to direct tariff collections not resulting from behavioral change. On the contrary, dynamic revenue effects account for reduced trade volume, adjustment measures in the market, and retaliation by trading partners.

Again, how are the tariffs announced by President Trump going to affect revenue? The overall picture suggests that very large amounts might be raised up-front by tariffs but are offset in the longer run by diversion of trade, modification of economic backgrounds, and retaliatory action by afflicted countries.

The outcome of US-Canada Tariff:   

With the current U.S.-Canada tariff tensions, nothing is certain except uncertainty, so business executives should monitor the latest industry developments and take prudent action.

Key players should consider taking the below proactive steps:

Understand the supply chains and sourcing practices; identify country-specific risks and vendor concentration vulnerabilities; assess full landed cost of imported goods, including tariffs. Explore alternative sourcing strategies and evaluate associated costs.

Assess tariff planning strategies, including advance delivery scheduling before expected tariffs, bonded warehouses, foreign trade zones, and duty drawback programs.

Entering into other global markets to diversify revenue streams and distribution channels.

Modeling pricing strategies to build the framework by which additional customer burdens can be passed on to customers versus negotiating long-term contracts and cost-sharing arrangements.

Taking a long-term view of transformations within supply chains and production and distribution footprints, to be well-grounded in swift changes, tariff hikes, and rest of trade threats.

Identify opportunities for enhanced efficiency, cost savings, increased workforce productivity, and profitability across the value chain, and prioritize investment types that yield better value over the long haul and give high returns on capital.

Export of Canada’s steel and aluminum Impact:

Canada is the biggest exporter of steel and aluminum to the USA, holding around $20.7 billion export value. Canada has been a major source of these critical materials for the American automotive, construction, and manufacturing industries.

With a 25% tariff in place by the United States, the Canadian steel and aluminum industry will be more expensive to US buyers, further diminishing price competitiveness against domestic and alternative international suppliers. These situations are likely to reduce export volumes and revenue losses and slow down the production process as demand for these commodities dwindles.

The tariff would weigh heavily upon these key steel- and aluminum-producing players in Ontario and Quebec, which are some of the largest manufacturing plants in the country. Many of these regions depend on exports to remain viable in an industrial economy, and any decline in shipments to the U.S. could lead to plant closures or job losses.

Aluminum Prices and US Tariffs:

Actions to consider: 

The key players in the steel and aluminum industry in Canada should explore different sales channels to assess alternative markets where product sales would not face tariffs.

Consequently, they might seek others within their supply chain for reduced costs of raw material inputs against these tariffs, selling U.S. customers any remaining secondary metal inventories before the tariffs take effect. Keeping ongoing current and further developments, such as government incentives that might benefit the sector under consideration and participation in industry efforts and advocacy, could also benefit greatly.

The takeaway

The increase in tariffs on steel and aluminum has negatively impacted the Canadian economy. This is evident in the steel and aluminum industries of Canada, which heavily depend on exports of finished products to the United States. As mentioned above, Canadian primary producers of steel and aluminum should consider their sales channels on alternative markets and should also engage their supply chain in negotiation towards achieving lower raw materials input costs.

Therefore, there would be a likely significant increase in the tariffs in price due to the US tariffs for Canadian companies procuring all those goods or components that contain material amounts of steel or aluminum. Such businesses need to evaluate the supply chain to understand the impacts of tariff input on costs and search for alternative suppliers for goods or components in non-tariff countries. This requires the implementation of cost and cash management strategies such as negotiation of better terms with existing suppliers or finding efficiencies in their production or administrative processes. Pricing strategies will also be required to reflect increased costs as well as maintain competitiveness and mitigate cash flow to ensure there are measures against possible margin shortfalls.

We are also expecting that Canada will announce their policies and measures to counter the US tariffs (e.g. imposing a Canadian surtax on certain US-origin imports).

Custom Market Insights can help your business navigate this current tariff situation. See our:

Anodized Aluminum Market, which helps you to understand the current and future projections of the anodized aluminum industry.

Long Steel Products Market, is the major industry where long steel is widely consumed by construction, industrial, railways, and other applications.

Aluminum Alloy Wheel Market, here, you will get an idea of the usage of material along with the sales channel across the globe as well as USA and Canada.

Consultancy Services, for strategies that can help Canadian businesses adapt to these and any potential new tariffs.

Get in touch with us today—your solution is just a step away!!.. [email protected]

[fairsalvage-blog]

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