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Steel stocks are up big today after President Trump announced he would double tariffs on steel and aluminum imports from to 50% from 25% with the new rates set to take effect on Wednesday, June 4. Trump made this announcement during a rally at a US Steel plant as he was touting the Nippon Steel takeover of US Steel (X). Trump opposed the takeover on the campaign trail, but says the deal is now more favorable for workers. All of the details are still being worked out.

• Steel prices have been falling in recent months. Demand has been impacted by the tariff uncertainty, which has caused companies to become more cautious about future production plans. The tariffs are likely to boost selling prices for steel, which benefits US steel producers. However, demand from steel consumers may be reduced further if price rise.
• The EU has responded that it is not pleased and may increase tariffs on US imports of steel. The timing of the tariff increase may also complicate ongoing trade talks between the US and the EU. However, the tariff move may also just be a negotiating tactic by Trump to extract better terms from the EU and could easily be reversed if a trade deal comes together.
• While the tariffs clearly benefit US steel producers, the bigger concern is what this does for costs to the much larger contingent of steel consumers. Steel is a core input for many industries, including automotive, appliances, home builders, farm equipment, energy infrastructure, just to name a few. This is not good news for the economy generally as those higher costs are likely to get passed on to consumers.
• Another wrinkle here is that a US trade court recently held that Trump's reciprocal tariffs are unconstitutional and not within the scope of the International Emergency Economic Powers Act (IEEPA), which is the statute cited by Trump to give him authority to impose tariffs. An appeals court issued a stay for now, but the legal challenge continues and may eventually reach the US Supreme Court. The steel tariffs are based on Section 232, so they are not part of the IEEPA case.

Steel producers are up sharply on the tariff news: CLF +25%, STLD +10%, NUE +10%. However, the net benefit to the economy is not really there as the much larger cohort of steel consumers are trading lower on the news: automotive (GM -4%, F -4%, STLA -3%), appliances (WHR -2.2%), farm/mining equipment (TEX -3%, CAT -1.3%, DE -0.3%), homebuilders (TOL -2.5%, KBH -2.3%, PHM -2.1%, DHI -1.9%, LEN -1.8%).

Given the size of the tariff increase, we would have thought the declines in share prices would be more. However, we suspect that investors are thinking that the tariffs may be short term given Trump's penchant for changing course often. Or they may just be a negotiating tactic and will get worked out when a trade deal with the EU emerges. On a final note, even with the tariffs on imported steel, it is not a sure bet we will see a surge in steel prices because demand has already been falling and higher steel prices might dampen demand even more.