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The Impact of Steel Tariffs on Global Trade and Industry
27 April, 2023
The Impact of Steel Tariffs on Global Trade and Industry

The Impact of Steel Tariffs on Global Trade and Industry

Steel tariffs have a long history dating back to the 19th century when governments started implementing them to protect their domestic steel industries. Since then, various governments worldwide have imposed and lifted them in response to changing economic conditions and trade relationships.

Steel tariffs refer to taxes imposed on imported steel by a government to protect its domestic industry. The rationale behind imposing steel tariffs is to make imported steel more expensive than locally produced steel, making domestic steel more competitive.

Steel is a critical component of international trade, with countries importing and exporting vast quantities of steel products yearly. Steel is used in various industries, including construction, automotive, and manufacturing, making it a critical input in global supply chains.

The importance of steel in international trade can be seen in the sheer volume of steel traded globally. In 2020, the world produced over 1.8 billion metric tons of crude steel, with China accounting for over half of the global output. This steel was traded among various countries, with the top five exporters accounting for around 40% of the worldwide steel exports.

So how do the steel tariffs impact international trade?

Steel tariffs can significantly impact international trade, particularly for countries that are major producers or consumers of steel. When a government imposes tariffs on steel imports, foreign steel is more expensive, which can have several consequences.

Advantages of steel tariffs:

Protecting the domestic steel industry: 

One of the main reasons for imposing steel tariffs is to protect domestic steel suppliers from foreign competition. Taxes can make it more difficult for foreign steel to enter the market, giving domestic producers an advantage and helping maintain industry jobs.

Promoting local production:

 By making foreign steel more expensive, tariffs can encourage local production of steel, which can lead to the development of a more robust domestic steel industry. This can also contribute to national security, as countries with domestic solid steel industries rely less on imports in times of crisis.

Disadvantages of steel tariffs:

Higher prices for consumers: 

Tariffs on steel can lead to higher prices for consumers who rely on steel products, such as automobiles or construction materials.

Retaliation from other countries:

When a country imposes tariffs on steel imports, other countries may retaliate by imposing taxes on the importing country's products. This can lead to a trade war, where each country imposes increasingly higher tariffs on each other's products, ultimately reducing trade and economic harm for all countries involved.

Impact on global supply chain:

Steel tariffs can also significantly impact the global supply chain, as many products rely on steel as a critical input.

Impact on global steel prices:

The global steel supply can be reduced when tariffs are imposed on steel, leading to higher prices. This can be particularly challenging for countries that rely heavily on steel imports. For example, in the United States, the imposition of steel tariffs in 2018 increased steel prices, which affected a wide range of industries.

Impact on steel suppliers and consumers:

Steel producers in countries that impose tariffs on imports may benefit from increased demand for domestic steel. However, steel consumers in these countries may face higher prices for steel products, which can affect their competitiveness. In addition, steel producers in other countries may be negatively affected by reduced product demand, which can lead to decreased profits and job losses.

Let's have a look at some examples of steel tariffs to understand them better: 

The US steel tariffs

In 2018, the United States imposed a 25% tariff on imported steel from several countries, including China, Canada, Mexico, and the European Union. The Trump administration argued that the taxes were necessary to protect US national security and domestic steel producers from unfair competition.

The US steel tariffs significantly impacted international trade, causing retaliatory measures from affected countries. For instance, the European Union imposed tariffs on US exports of goods such as bourbon, motorcycles, and blue jeans in response to the steel tariffs.

The tariffs also affected the global supply chain, with US manufacturers of goods that require steel, such as automobiles and construction equipment, facing higher costs for their raw materials. This led to higher prices for US consumers of these goods, which could potentially harm the economy.

  • The EU steel tariffs

In 2018, the European Union imposed tariffs on certain steel products imported from the United States in response to the US steel tariffs. The EU tariffs affected many products, including hot-rolled coil, cold-rolled coil, and sheet pile sections.

The EU tariffs significantly impacted the US steel industry, with US steel exports to the EU declining by 37% in the first half of 2019 compared to the same period in the previous year. The tariffs also led to higher prices for steel in the EU, which affected EU manufacturers of goods that require steel.

  •  The Chinese steel tariffs

In recent years, China has imposed tariffs on imported steel products to protect its domestic steel industry from competition. For instance, in 2020, China imposed anti-dumping duties on certain stainless-steel suppliers imported from the European Union, Japan, and South Korea.

The Chinese steel tariffs have significantly impacted international trade, with affected countries imposing retaliatory measures. The taxes have also affected the global supply chain, with manufacturers facing higher costs for their raw materials.

But the steel tariffs are a controversial topic in international trade, with proponents arguing that they protect domestic industries and promote national security. At the same time, opponents say that they harm international business and increase consumer costs. The impact of steel tariffs on the global steel industry is significant, affecting supply chains and international trade flows. As the world continues to grapple with the effects of the COVID-19 pandemic, the role of steel tariffs in shaping international trade and the global economy remains to be seen.

Hence, in the end, let's see the criticisms these tariffs face: 

1. Negative impact on consumers: Steel tariffs can result in higher prices for steel products for consumers, including industries that rely on steel, such as the construction and automotive industries. This can ultimately increase consumer prices for goods and services, impacting purchasing power.

2. Negative impact on global trade: Steel tariffs can cause disruptions in worldwide marketing and impact relations between countries. When a government imposes tariffs, other countries may retaliate by imposing their tariffs on goods from that country, leading to a trade war. This can hurt the global economy and the economies of the countries involved.

3. Potential retaliation by affected countries: Steel tariffs can result in retaliation by other countries, hurting the domestic industries that rely on exports. For example, if the US imposes steel tariffs on China, China may retaliate by imposing tariffs on US goods such as soybeans and automobiles. This can lead to a decline in demand for these goods and negatively impact US industries that rely on exports.

4. Limited effectiveness in protecting domestic industries: Steel tariffs may not be an effective way to protect domestic industries as they can result in higher input costs for domestic producers. This can make it more expensive for domestic producers to manufacture goods, leading to lower competitiveness in the global market. Additionally, steel tariffs can result in a limited supply from steel suppliers, leading to higher prices and lower availability for domestic industries that rely on steel as a raw material.

To conclude, 

Steel tariffs significantly impact international trade and the global steel industry. While they may offer some advantages in protecting domestic industries, they also have several disadvantages, including adverse effects on consumers, international trade, and the potential for retaliation by affected countries.

It is essential for governments to carefully consider the effects of steel tariffs on Industrial Steel suppliers and pursue alternative solutions that balance the needs of domestic industries with the benefits of international trade.