Trump’s metal tariffs to raise costs for US companies and add to economic uncertainty

US President Donald Trump’s blanket tariffs on steel and aluminium will increase costs for American businesses such as car makers and oil and gas companies, as well as consumers.

However, for the rest of the world, the move could mean lower prices as more supplies of the crucial metals are redirected from the US, experts said.

The US, the world's largest steel and aluminium importer, on Wednesday introduced sweeping 25 per cent tariffs on all imports of the metals, which are used in construction, the car industry, energy and manufacturing. The move aims to stimulate domestic processing.

Canada, the top supplier of iron, steel and aluminium to the US last year, and the EU have each announced billions of dollars worth of retaliatory tariffs.

“The tariffs on steel and aluminium are likely to push up industry costs in the US that are reliant on imported material,” Edward Bell, acting group head of research and chief economist at Emirates NBD, told The National. “Manufacturers that make cars, for instance, or oil and gas drilling [equipment], which make extensive use of steel, will face higher costs because of the tariffs."

Meanwhile, the rest of the global economy could see prices “turn downward” as shipments are moved away from the US to other markets, he added.

The US imported $54 billion in steel, aluminium and related products in 2024, representing 1.65 per cent of the total $3.3 trillion in goods imported by the country last year, according to a report by Spanish bank BBVA.

“The motivation behind the metal-specific tariffs appears to be a push to build out more domestic manufacturing of both steel and aluminium in the US,” Mr Bell said. "But approving, financing and building those plants will take time, leaving US industry and consumers to endure higher costs in the interim."

US-based consultancy BCG's report last month said the country could face a $22.4 billion increase in steel and aluminium import costs due to the tariffs, and up to $29 billion more for derivative products.

Despite recent declines in US inflation, Mr Trump's tariff strategy has sparked worries that prices could rise again and economic growth could be hampered. Goldman Sachs this week lowered its 2025 gross domestic product forecast for the US to 1.7 per cent from 2.4 per cent, citing tariff uncertainty.

Goldman Sachs has joined a growing number of Wall Street banks predicting a worsening outlook for the US economy.

“Taken together, President Trump’s move to widen his trade offensive in an effort to rewire the US economy as a global manufacturing powerhouse has rattled financial markets, startled consumers still unnerved by Covid-era inflation and fuelling recessionary angst,” MUFG said in a research note on Thursday.

Because the tariffs were announced in advance, steel and aluminium prices have remained fairly steady since the import duties took effect, but greater volatility is possible down the line, the Japanese lender said.

The three-month London Metal Exchange (LME) aluminium price was up 0.33 per cent at $2,703 per tonne at 2.06pm UAE time. Meanwhile, US domestic steel futures were down 0.42 per cent at $940 per short tonne or $1036.17 per metric tonne.

Short-term gains

US steel and aluminium companies may see short-term gains as the tariffs make their products more competitive. It will drive up prices and profit margins, but companies will need to manage shifts in demand through pricing, production adjustments and inventory management, BCG said last month.

“Over the longer term, they should determine whether to invest in more capacity, explore making higher value-added products that have primarily been imported thus far, and improve operational efficiency to remain competitive,” the report said.

Steel production in the US far outweighs aluminium production. “The US was a net importer of steel in 2023, suggesting room to further displace imported material,” MUFG said.

“While additional tariffs may provide an uplift to US steel prices in the short-term, unlike in aluminium, the US has been expanding its steel-making capacity, capping upside to prices.”

Gulf impact

After Canada, the UAE sends the most aluminium to the US, while Oman, Qatar and Saudi Arabia are also large suppliers. The Gulf represented about 16 per cent of all imports of the metal in the US last year.

However, the economic fallout should be minimal. “Steel and aluminium exports to the US tend to hold a relatively small share of overall GCC non-oil exports, thus the economic impact is expected to be contained,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

A bigger concern for the region would be a “sharp and sustained” drop in oil prices, with US policy uncertainties leading to a weaker demand outlook, she told The National.