President Trump on Thursday, March 1 – during a meeting with several senior leaders and representatives of both the steel and aluminum industries – made an announcement proclaiming a blanket tax on all imported steel and aluminum. It sent shockwaves around the world, and could be the tipping point for a trade war, with long-lasting effects. It will certainly change how our trade partners view the U.S. for years to come. By March 7, the White House indicated that the initial tariffs would exclude Canada and Mexico, and potentially even other U.S. allies; however, as usual, details are scant and speculation is rampant.
Known Facts Regarding Aluminum
Let’s start with what we know. U.S. imports of aluminum have increased by nearly 60% from 2013, to DuckerFrontier’s estimate of seven million tons in 2017. Imported aluminum now comprises 60% of the current U.S. consumption of the metal; and approximately 43% is imported from Canada, due to its low-cost hydropower-based production of primary aluminum.
Overall, the U.S. showed a trade deficit of five million tons of primary aluminum in 2017. The largest gap is with China, who exported 640,000 tons of aluminum to the U.S. last year – but virtually all of this was sheet, plate and foil – not primary aluminum. As far as rolled products, the U.S. imported 1.38 million tons of rolled aluminum – including foil – which set a new record. China took the top exporter spot, with 48% of the share. A tariff on Chinese sheet, plate and foil might make sense, except for the fact that the U.S. rolling industry is operating at near capacity. Canada ranked second at 12%; South Africa and Germany tied for third at 5% each.
Known Facts Regarding Steel
DuckerFrontier’s research shows that the U.S. imported roughly 33 million tons of steel in 2017, five times the aluminum imports – but less than twice the value of those same aluminum imports. The 33 million tons made up only one-fourth of our total steel consumption for the year, and only 2% of the imported steel came directly from China. Once more, Canada and Mexico accounted for the largest share of imports. Essentially, idled steel capacity in the U.S. could cover the entire shortfall from any potential loss of imports.
The minimization of the U.S. steel industry from a global perspective is understandably very disturbing. The U.S. now produces less than 5% of the steel on the global market. This downward spiral began in the 1980s and is not the exclusive fault of China or Canada. It has taken us nearly 40 years to get to where we are today.
Potential Effects of New Tariffs
On paper, the tariffs will increase the price per pound of aluminum by $0.10, while only increasing the price per pound of steel by $0.075. But when manufacturing products like auto body parts, a pound of aluminum normally replaces close to 1.667 pounds of steel. In this sort of application, aluminum would still be cheaper by $0.025 per pound.
Although the full extent of the tariffs on aluminum and steel are unknown, and the impact is uncertain, there are still protective measures that companies can take immediately. It will be vital that risk mitigation strategies are thought through and put into place to minimize supply-chain disruptions. At a minimum, a closer look and thorough evaluation of possible impacts to each business is imperative in the days ahead.
For more than two decades, DuckerFrontier has been at the forefront of materials research. DuckerFrontier works closely with clients to help determine their exposure, risk and strategy optimization to face the changes head-on. DuckerFrontier can help to navigate the complex business environment – both specifically related to the impact of tariffs on your business, but also by helping to address other questions, including:
- What are the key trends and practices in the industry today, as it relates to material usage?
- What are the value propositions/trade-offs of the different materials and manufacturing processes by application?
- How is the supplier landscape currently structured to offer you a competitive advantage to leverage, or threat to mitigate?
- How are quickly changing dynamics/growing trends such as electrification, changing fuel prices, autonomy and industry consolidation likely to impact material usage and trends?