Final Thoughts

Lots of questions, fewer answers

I’ve gotten questions about whether the blanket tariffs will cover scrap. Because the market already expects scrap prices to rise in March, and that would only add fuel to the fire.

I’ve also had questions about whether the universal tariffs would come in addition to Section 232 tariffs of 25%, which are slated to be enacted on March 12. Because if both are applied, it would in theory leave Canadian and Mexican steel subject to combined tariffs as high as 50%.

I wish I had more clarity on such matters. Because there is some frustration – even among those who otherwise support Trump’s tariffs – that more detail is not available on a policy that could become reality in less than week.

Maybe there will be more in writing from the administration by the time you are reading this article. Because if policy used to shift from one day to the next, it now shifts from one minute to the next. If SMU could camp out on Capitol Hill, we would. As it stands, we’re following Truth Social like everyone else. And parsing out Trump’s latest remarks on TV.

IEEPA has entered the chat (again)

What I can say with some certainty is if the Trump administration goes ahead with the universal tariffs on Tuesday, it will probably do so by citing the International Economic Emergency Powers Act (IEEPA).

IEEPA requires the president to first declare a national emergency. The bar for that has traditionally been war, as Lewis Leibowitz notes in a column here.

But as Alan Price, another veteran trade attorney, noted in a column that has proven prescient, precedent is no longer your best guide. You should expect this second Trump administration to make sweeping policy changes overnight using tools like IEEPA.

Blame Canada?

Trump has telegraphed he will use not war but fentanyl and immigration as a reason to invoke IEEPA and slap tariffs on the United States’ neighbors. If this all sounds familiar, it’s because we went through the same drill earlier this month – only to see Canada and Mexico granted reprieves at the eleventh hour.

The universal tariff threat was lifted after Canada flew Blackhawk helicopters around the US-Canada border. And after Mexico sent troops to the US-Mexico border. Basically, “Hey, look, we’re taking action!” Is there any security theater or policy action that might avert tariffs again this time?

I know this isn’t a popular opinion in all quarters. But I just have to say it’s a little strange to see Trump potentially jeopardizing USMCA – the deal he negotiated in his first term to replace NAFTA. (Full disclosure: I’m from Pittsburgh and will always bleed black and gold. But I also have some family in Canada. Which had never seemed very controversial or even worth mentioning before.)

That’s not to say Section 232 shouldn’t be tightened up. Or certain trade practices – even among our traditional allies – weren’t problematic. But when it comes to the reboot of Section 232, I do wonder whether there will be some unintended consequences.

Consumers not complaining – yet

It’s arguably good the measures have been extended downstream. That means steel consumers won’t be stuck in the bind of having higher raw materials costs while struggling to pass those costs along to consumers. With tariffs on downstream goods, one part of the supply chain won’t be favored over another.

I guess it comes down to how much consumers are willing to accept. And issues like egg prices and Elon Musk’s choice of baseball caps have caught far more mainstream attention than steel prices so far.

Meanwhile, steel prices continue to rise. Cleveland-Cliffs officially went to $900 per short ton (st) for hot-rolled coil last week. My understanding is most other mills are around the same level now, even if they haven’t officially announced it. Case in point: Nucor’s CSP might be at $860/st. But good luck finding tons at that price now. And I’m almost positive Nucor’s list price will be higher next week.

What if 25% isn’t enough?

Let’s loop back to Section 232, which is more of a known commodity and, in my view, far less likely to be pushed back last minute. There remains the matter of whether a 25% tariff will provide a long-term barrier to imports if US prices continue to rise.

My colleague David Schollaert has written about how US HR prices have soared above those in Europe and Asia. And I’ve heard variations on this from a number of you when it comes to imports: Take X/ton price from Y for country. Multiply that by 1.25 to offset the 232 tariff. And add Z/ton for freight/handling. You’ll often find what results is a competitive price on a landed basis.

That ‘Y’ could be hot-rolled (HR) coil from South Korea or Turkey. Maybe it’s cold-rolled coil from Vietnam, Taiwan, or Thailand. Or perhaps it’s coated from Indonesia, Pakistan, or Morocco. On the plate side, maybe Malaysia or certain European countries.

And that’s just flat rolled. Korea could also send in a lot of pipe. Maybe we see more rebar for Algeria. You get the point… We could see a lot of steel coming in from a lot of different places.

We’re basically putting all foreign steelmakers on the same playing field with 25%. Why not do 50% for everyone and 25% for US allies and trading partners? Or maybe this: Sure, the quota for South Korea might have been too high. Ditto Brazil. But is the best solution a 25% tariff with no limits on import volumes? Or would it be a reduced quota?

A note on sheet inventories

Let’s say imported material ordered now arrives in June. What happens in April as domestic lead times get closer to summer?

Also, sheet inventories are high. People loaded up last summer and again last fall when domestic prices were low. And we’ve seen a flurry of buying lately to get ahead of tariffs and the next round of price hikes.

As best as I can tell, demand is better than it was this time last year. That said, HR prices were at $675/st at the start of the year. If they rise to $900/st (and we’ve seen prices above that in some instances), it would represent a gain of 33% – more than the amount of the tariff.

That maybe shouldn’t come as a shock. HR prices jumped $640/st in January 2018 to $915/st in July of that year following the implementation of tariffs in March of that year, according to SMU’s pricing records. In other words, a 25% tariff caused prices to shoot up nearly 45%.

I’m almost certain price gains like the ones we’re seeing now are far outstripping demand. So, again, if we’re pulling forward demand now, what happens in summer, which is typically slower for steel – and when we could see more imports and potentially an inventory overhang as well?

I’ve said it before, but I’ll say it again. The upside risk was a lot more than the downside risk in H2’24. Watch out for the reverse becoming the case in the weeks ahead.

SMU Community Chat with Wiley’s Alan Price

Wondering what the fallout from all of the tariffs might be? Then register for our next Community Chat on Wednesday, March 19, at 11 am ET.

Our featured speaker will be Alan Price, a leading trade attorney at Wiley and someone whose columns you read regularly in these pages.

Alan is well connected, knows this stuff like the back of his hand, and should be in a good position to tell you what the latest tariff news means for your business. Especially once we’ve had a week to see where the dust settles from the revival of Section 232 on March 12.

You can register here.

And, in the meantime, thanks to all of you for your continued business. We really do appreciate it!