AsiaThis week, we focus on the steel and aluminium sector, following last week’s round of tariff measures from the US administration. President Trump’s 25% tariffs on steel and aluminium are aimed at addressing concerns over unfair trade practices and excess capacity, with China explicitly singled out as a major contributor to these issues. However, it remains to be seen whether these tariffs will effectively resolve the problems they are intended to address, especially since China’s share of US imports in these sectors is relatively small (chart 1). In fact, Canada is the largest supplier of these products to the US (chart 2), and may face cumulative tariffs of 50% if all of the US's announced measures against the country are implemented. That said, even with these steep tariffs, the immediate impact on Canada’s exports and broader economy may be limited, given that steel and aluminium exports account for a small portion of Canada’s overall exports (chart 3).
Delving deeper into China’s overcapacity issues, several indicators continue to signal persistent challenges, such as the ongoing deflation in producer prices for related metal products and broader export prices (chart 4). A closer look at China’s steel industry shows that local producers have been struggling long before the prospect of Trump’s tariffs re-emerged (chart 5), facing weak domestic demand and fierce competition that have driven prices down. Beyond tariffs, we also touch on political interventions driven by national security concerns, such as the US blocking Nippon Steel’s acquisition of US Steel, though President Trump has recently signalled some flexibility on this matter. While this transaction is small in the context of Japan’s broader foreign direct investment in the US (chart 6), it highlights the intersection of trade and national security policies.
The US’ latest tariff actions On February 10th, US President Trump escalated his tariff actions by announcing a 25% tariff on all US steel and aluminium imports, set to take effect on March 12. According to the White House, this move is intended to protect the US steel and aluminium industries, which are said to have been negatively impacted by unfair trade practices and global excess capacity. Specifically, China has been identified as one of the key sources of this excess capacity.
However, according to official figures, China’s share of US steel imports is relatively small, accounting for less than 2% by the end of last year, as shown in chart 1. China’s share of aluminium imports to the US is higher but still not dominant, at around 10%. These statistics may not fully capture the situation, however, as some US steel and aluminium imports could have been rerouted from other countries, possibly to bypass previous tariffs, before ultimately entering the US market. This rerouting may be a key factor in President Trump's decision to impose blanket tariffs this time, rather than offering exemptions as in previous instances.
