Will the U.S. 25% steel and aluminum tariffs achieve the desired effect?

The United States broadened its slate of tariffs on Wednesday as sweeping 25-percent tariffs on steel and aluminum imports took effect "with no exceptions or exemptions."

This move marks the latest escalation in U.S. President Donald Trump's unpredictable trade policies, which have drawn criticism, triggered retaliatory measures, and rattled investor sentiment and global equity markets.

For instance, the broadest measure of the U.S. stock market has lost nearly $5 trillion in value over the past three weeks.

The European Commission responded almost immediately, saying it would impose counter tariffs on 26 billion euros ($28 billion) worth of U.S. goods starting next month. Close U.S. allies Canada and the UK criticized the tariffs, with Canada mulling reciprocal actions and British Business and Trade Secretary Jonathan Reynolds saying "all options were on the table" to respond in the national interest. 

Backfire on the U.S.

This is not the first time Trump has imposed tariffs on steel and aluminum. During his first term in March 2018, he introduced a 25-percent tariff on steel and a 10-percent tariff on aluminum, aiming to reduce reliance on foreign metals and boost domestic production. This time, however, both steel and aluminum face a 25-percent tariff, raising concerns about even greater economic repercussions.

Saida Litosh, lead metals analyst at the London Stock Exchange Group (LSEG), highlighted the differences between Trump's two-term tariff policies in an interview with Al Jazeera. 

She warned that the new 25-percent rate could significantly increase costs for U.S. manufacturers reliant on imported aluminum. "There is also the issue of escalation – what will the affected countries do in response? Will they raise retaliatory tariffs, and if so, to what scale?" Litosh said, cautioning that price increases could eventually trickle down to downstream industries and consumers.

Li Fuyi, an associate researcher at the Institute for Foreign Economic Research under China's National Development and Reform Commission, told CMG that Trump's decision to impose tariffs stems from several factors: reducing the U.S. trade deficit, appealing to voters in Rust Belt states like Indiana and Pennsylvania, where steel and manufacturing are traditional pillars, and decreasing reliance on foreign steel and aluminum.

However, Li noted that despite these protectionist measures, the U.S. steel industry has failed to achieve import substitution. Domestic steel production in 2024 has fallen by nearly 10 percent compared to a decade ago. "The capacity utilization rate of steel mills and global competitiveness are declining, and there is no sign of the manufacturing prosperity Trump promised," Li said.

Instead of boosting the economy, Trump's tariff policies have reportedly slowed U.S. economic growth and reduced employment. An Atlantic Council study estimated that the 2018 tariffs alone cost the U.S. 153,054 jobs in the steel industry. Another study by the U.S.-China Business Council suggested that nearly 250,000 Americans lost their jobs due to the tariffs.

Recession fears

The ripple effects of these "America First" policies have also harmed U.S. allies and global economic development. Data from the U.S. Department of Commerce shows that the U.S. is a major importer of steel and aluminum, with Canada, Mexico, and Brazil among its largest suppliers. These metals are critical for industries such as construction, automotive, machinery, household goods, and electronics.

The tariffs mean U.S. businesses importing these materials will face a 25-percent tax, likely driving up costs for industries like aerospace and car manufacturing. American companies relying on steel and aluminum have already warned that the tariffs could lead to higher prices for their products. Capitol Economics predicts that the annual U.S. inflation rate could rise from 2.9 percent to as high as 4 percent.

Beyond the domestic impact, there are concerns about retaliatory measures from key U.S. trade partners. Canada, for example, has vowed swift retaliation. Litosh warned, "The proposed tariffs risk triggering retaliatory measures from key trade partners and disrupting the North American aluminum supply chain."

Xu Xiangchun, information director of Shanghai Steel Union, told CMG that other countries may retaliate by imposing tariffs on U.S. goods or on each other, potentially causing significant disruptions to global trade flows and supply chains.

The corrosive effects of tariffs are well-documented. In 1930, the U.S. introduced the Smoot-Hawley Tariff Act, despite international trade accounting for only 9 percent of the country's GDP at the time. The act proved disastrous, leading to boycotts of American products, personal insults against Americans abroad, and widespread international protests. Most critically, it undermined Germany's ability to export its way out of the burdensome reparations imposed by the Treaty of Versailles, exacerbating global economic tensions.

As the new tariffs take effect, the world watches anxiously to see whether history will repeat itself, with protectionist policies potentially triggering a cascade of economic and geopolitical consequences.