Financial report says tariffs may be good for U.S. steel and aluminum producers, but have not deterred subsidized Chinese production.
Hilco Valuation Services

Editor’s Note: The following excerpts are from a report titled “The Evolving Story of Steel and Aluminum Tariffs” produced by Michael Sullivan of Hilco Valuation Services, a subsidiary of Hilco Global, an international financial services company. For the full report, visit the News page at

Background Highlights from the Report

  • On March 1, 2018, the current U.S. administration announced its intention to impose a 25 percent tariff on steel and a 10 percent tariff on aluminum imports.
  • The tariffs imposed between March and May of 2018 fell under Section 232 of the Trade Expansion Act of 1962. The section 232 tariffs originally excluded the two largest trading partners for steel products for the U.S.: Mexico and Canada. In 2018, these two countries imported 5.6 million tons and 3.5 million tons of steel products into the U.S., respectively, as comparted to 5.7 million tons and 3.0 million tons in 2017.
  • Fearing circumvention, tariffs were ultimately applied to both Mexico and Canada and remained in effect until May 17, 2019, when President Donald Trump announced that they would be rescinded as part of the larger U.S.M.CA agreement.
  • The tariffs were far reaching and applied to both semi-finished goods such as steel plate, which is used for fabrication into other products, as well as finished products like steel pipe and rebar that are used as-is.
  • The largest importers of steel products are Canada, Brazil and Mexico. China remains a major force in the export market either directly or indirectly via transshipment through other countries.

USA & China

From the section “Good for Who?”

Domestic market prices for most steel product types increased in the first and second quarters of 2018 and then stabilized or decreased.

Market prices for steel coils, which are typically more volatile than those of other product types increased more than 30 percent in the months following the tariff announcement. As domestic output increased, price competition also increased. Market prices peaked in the June-July 2018 period and then slowly decreased. As of April 2019, market prices for steel coils were typically at or below pre-tariff levels.

While benefiting the steel and aluminum industries and suppliers to those industries, the tariffs have also made steel and aluminum more expensive. As a result, this has made construction and domestically produced vehicles, appliances, consumer and industrial goods more expensive.

From the section “Why the Previous Approach to Trade Sanctions was Deemed Insufficient”

Over the last 10 to 15 years, foreign manufacturers including to great extent the Chinese have been highly successful in offloading excess steel and aluminum products—both semi-finished products like rebar and steel plate and finished products including steel tubes or fasteners—into the U.S. and other markets.

This clearly has had the impact of driving down prices for these goods and putting stress on [the U.S.] domestic manufacturing and distribution engine. Even when not directly selling goods into the U.S., Chinese producers do so indirectly by a) selling coils to neighboring countries where they are converted into pipe that is then exported to the U.S.; or b) flooding other countries with Chinese goods such that coil producers in Australia and elsewhere then seek to export their products into the U.S.

Other countries like Brazil and Russia import semi-finished goods including slabs that are converted into coils and plates, and billets that are converted into “long” products like beams and bars in the U.S. These lower-cost, imported semi-finished goods typically provide a cost advantage to importers that compete with U.S. producers using domestically produced slabs or billets.

As this has occurred, domestic manufacturers and interests have understandably reacted by notifying the Office of the U.S. Trade Representative (USTR) and the World Trade Organization (WTO) of the activity, in each case seeking to trigger some sort of punitive measure of tariff as a result.

And indeed, after some period of time during which a competitive advantage was gained by the exporters, resulting tariffs have been imposed on the import of some specific categories of products. In certain cases, these tariffs or measures have even been retroactive in nature, designed in an effort to claw back losses incurred over the prior period.

But just as quickly as these deterrent measures have been implemented and enforced on one metal or aluminum product category or type, exporters as a group have been able to nimbly shift focus to another. And when a new tariff is imposed after months or years of that, they have refocused again, essentially circumventing the system.

Case in point: In 2015, the U.S. placed tariffs on Chinese cold-rolled and galvanized coils and then observed a notable increase in output and export of the same sorts of goods from Vietnam. The tariffs were circumvented by Chinese producers who shipped semi-finished steel coils to Vietnam and elsewhere. These items were then processed to completion in those countries and later transshipped to the U.S. During 2015, cold-rolled steel shipments to the U.S. from Vietnam increased to $215 million from $9 million annually following the imposition of anti-dumping duties on Chinese steel products. During the same period, imports of corrosion-resistant steel rose to $80 million from $2 million. In mid-2018, finding that its anti-dumping and anti-subsidy orders had been purposefully evaded, the U.S. Commerce Department imposed significant duties on steel products originating in China but being shipped into the U.S. from Vietnam.

Based upon data from the International Trade Administration/U.S. Department of Commerce, individual actions such as those against Vietnam as well as the broader 232 Tariffs have had a notable impact. From 2017 to 2018, U.S. quantity of imports decreased from 8 of the [country’s] top 10 import sources. The overall value of U.S. imports increased from five of the top 10 sources. The value of imports from Vietnam increased the most in 2018 (59 percent), followed by Mexico (20 percent), Canada (8 percent), Brazil (6 percent) and Germany (6 percent).

From the section “The Realities of Rule 232 in Action”

To a great extent, the informal agreements between the Trump administration and the steel and aluminum producers in 2018 have proven true. As the tariffs have taken effect, they have succeeded in making foreign goods more expensive, enabling domestic steel producers to raise their prices incrementally to a level that still provided a market advantage. Mills have reopened, employees have been rehired and usage has increased. As expected, domestic output to-date has increased on both aluminum and steel. While they have helped U.S. steel and aluminum producers to regain momentum and competitiveness, part of the goal of the 232 tariffs was to deter subsidized Chinese production. That has not been as effective. There is also growing concern by the administration over the increasing practice of transshipment of Chinese metals through Vietnam and other third-party Asian countries. The potential also exists for countries such as South Korea to focus in more on the U.S. market directly or indirectly as China branches out to dispose of its surplus in markets where South Korea has enjoyed some level of dominance and high profitability over the past several years.

Furthermore, the tariffs have worked, but not equally for all parties. Take, for example, automotive manufacturers who are heavily steel, and increasingly aluminum-reliant. Current market conditions do not enable these increased costs to be passed along directly to consumers in the form of vehicle sticker price increases. While buying U.S. steel and aluminum at incrementally higher cost and supporting the U.S. economy, they have not been able to truly benefit from a profitability perspective. And overall, the U.S. domestic consumer suffers a bit too because things like the doors for the storage units they rent and the garage doors they need to replace in their homes go up in cost as well. So, in some ways the policy has favored steel manufacturers and workers at the expense of the general public. But overall, the U.S. is producing more tonnage, more people are working, eating out at restaurants with their families and building the economy.

From the section “What Does the Future Hold?”

At some point in the next two to six years, the current administration policies will likely be rescinded or changed. Until then, lenders will no doubt want to keep a close eye on their metals industry portfolios with an emphasis on assessing performance and risk.