Trump orders 25% tariffs on steel and aluminum. Here’s what experts say could become pricier.
President Trump is again turning to tariffs to advance his trade agenda, signing new orders to place 25% import duties on all steel and aluminum imports. Although the idea is to protect U.S. manufacturers from unfair competition, consumers could end up paying more for some products that use the metals, according to economists.
Mr. Trump, who signed two executive orders on Monday imposing the new metal tariffs, has said that such duties can help revitalize key U.S. industries. For instance, some companies could opt to open new plants in the U.S. to avoid tariffs, while buyers could shift to U.S.-made products rather than pricier imports.
“Our nation requires steel and aluminum to be made in America, not in foreign lands we need to create in order to protect our country’s future resurgence of U.S. manufacturing and production, the likes of which has not been seen for many decades,” Mr. Trump said on Monday.
The new metal tariffs affect a total of about $50 billion in imports. The U.S. imports roughly a quarter of domestically used steel, with most of it sourced from Canada and Mexico, along with countries including Brazil, South Korea and Japan, according to the International Trade Administration.
Who pays for tariffs
Because U.S. importers pay tariffs on overseas goods directly to the federal government, the costs are typically passed onto American consumers, trade experts told CBS MoneyWatch. That means some products that rely on steel and aluminum, such as vehicles and appliances, are likely to become more expensive if the steel and aluminum tariffs go into effect.
“If you put a tax on imported steel and aluminum, you will raise the price of everything that uses that — cars first and foremost,” said Dean Baker, senior economist at The Center For Economic and Policy Research.
A typical car contains roughly 1,000 pounds of steel at a cost of about about $6,000 to $7,000 per vehicle, Baker told CBS MoneyWatch. That means adding a 25% tariff could increase the cost of a car by $1,000 to $1,500, he estimated. Although some automakers might shift to buying more U.S.-made steel, American manufacturers would also likely boost their prices, taking advantage of the higher costs for foreign-made steel, he added.
Meanwhile, U.S. car prices could rise even mores sharply if Mr. Trump proceeds with 25% tariffs on all Mexican and Canadian imports, now subject to a 30-day pause as officials negotiate. The impact of those tariffs would add $6,250 to the average $25,000 price of a car shipped into the U.S. from those two countries, according to an analysis by S&P Global Mobility.
Under Mr. Trump’s orders, steel imports from all countries will now face 25% tariffs, while aluminum tariffs will be raised from 10% to 25%. The orders were instituted under Section 232 of the Trade Expansion Act of 1962, which authorizes the president to adjust imports, including by imposing tariffs, when they are determined to threaten national security.
Tariffs could drive up inflation
Mr. Trump’s plans to lean on new tariffs to enact his trade and other policy objectives has prompted some economists to forecast higher inflation in 2025. While it’s not clear that Mr. Trump will enact all the tariffs he’s outlined – he recently gave a 30-day reprieve to Mexico and Canada in his plan to enact 25% import duties on those countries — the president is also signaling plans to move forward with additional tariffs.
On Sunday, Mr. Trump said that, in addition to the steel and aluminum tariffs, he planned to announce “reciprocal tariffs” on Tuesday or Wednesday, which he said will take effect immediately. Under that scenario, the U.S. would impose import duties on products in cases where another country has levied duties on U.S. goods.
“If they charge us, we charge them … every country,” Mr. Trump said, adding, “If they are charging us 130% and we’re charging them nothing, it’s not going to stay that way.”
Economists and Wall Street analysts warn that new U.S. tariffs, if sustained, could cause inflation to flare even as many Americans say they continue struggling with the cost of living. Mr. Trump’s latest proposed steel and aluminum tariffs, plus the reciprocal tariffs, could boost the core personal consumption expenditures price index — a key measure of inflation — by an additional 0.4 percentage points, Deutsche Bank economists estimate in a Feb. 10 research report.
If the postponed tariffs on imports from Mexico and Canada go into effect after the 30-day pause, inflation could rise higher than 3.5%, they added.
The long-term impact on U.S. prices is less certain and is contingent on how manufacturers react.
“U.S. steel prices will likely rise in the near term if these tariffs are implemented in full,” economists with Capital Economics said in a report. “However, higher prices might incentivize greater domestic production and help prices to fall back before long.”
During Mr. Trump’s first term, steel producers increased their output after tariffs were imposed, while domestic demand fell. Within 12 months, those factors contributed to steel prices declining to their level before the tariffs were imposed, Capital Economics noted.
A jump in prices, coupled with rising inflation expectations, would come at an awkward time for consumers and for Mr. Trump. While he has received positive approval ratings for his first three weeks in office, two-thirds of voters said that they don’t believe he’s doing enough to lower the price of goods and services, according to a recent CBS News poll.
Inflation around the U.S. remains sticky, with the Federal Reserve pausing additional interest rate cuts until the rate of consumer price gains falls closer to its 2% annual target. Consumer Price Index data for January, scheduled to be released on
Wednesday, is expected to show that prices rose 2.9% in January, unchanged from the prior month, according to financial data firm FactSet.
“These are uncertain times, and the biggest uncertainty with inflation is definitely the tariffs,” Baker of CEPR said.