Trump's tariffs enrich steel barons at high cost to US manufacturers and households

If Andrew Carnegie (1835–1919), the original steel baron, were alive today, he might applaud President Donald Trump's latest 50 percent tariff on steel imports. High tariffs on imported iron originated with the Tariff Act of 1816. They were extended to cover steel rails in the Tariff Act of 1870, launching Carnegie's hey-day. To compensate for the high cost of protected steel, the McKinley Tariff of 1890 raised the tariff on tin plate—a big import at the time—from 30 percent to 70 percent. That raised domestic prices, but according to economist Douglas A. Irwin, it also accelerated the creation of a competitive US tin plate industry.

Fast forward to May 2025: Trump simultaneously approved a "partnership" between Nippon Steel and U.S. Steel and announced a 50 percent tariff on steel and aluminum imports. Trump's embrace of Nippon Steel—which promised $14 billion in new investment—was coupled with the 50 percent tariff that almost guarantees future profits. The deal totally reversed Trump's strident campaign opposition to Nippon. Trump may have imagined that his investment and tariff package channeled the first "Napoleon of Protection," President William McKinley.

Trump's latest tariff drama doubles the previous 25 percent tariff imposed in February 2025 for "national security" reasons (Section 232 of the Trade Expansion Act of 1962).

That 25 percent tariff revived a steel duty imposed by Trump in March 2018, invoking Section 232, when Trump famously declared, "Trade wars are good, and easy to win." A Department of Commerce report, issued in January 2018, underpinned the "national security" claim. The report devoted a few unconvincing paragraphs to defense needs (only 3 percent of US steel production)¹ and most of its 58 pages to the industry's economic woes.

A Peterson Institute analysis calculated that the 25 percent tariffs in 2018 added $270,000 to steel industry profits for each steel job saved. The annual cost to steel-using industries was a hefty $650,000 for each steel job saved.²

In a retrospective analysis, Reuters found that Trump's subsequent relaxation of the 2018 steel tariffs on imports from Canada and Mexico, and by Biden's relaxation on imports from the European Union, somewhat reduced the premium of US hot-rolled steel coil prices compared to world prices. However, in late 2024, the premium was still more than 25 percent. Numerous anti-dumping and countervailing duties on steel imports, along with the Section 232 tariffs, ensured a high premium.

Meanwhile, following the 2018 duty, US steel production amounted to around 80 million tons annually right through 2024, and US steel jobs ranged between 80,000 and 90,000. Despite the "national security" tariff—essentially industrial policy under a different name—there was no long-term gain in production or jobs. But it can be argued that the 2018 tariff prevented further erosion of the US industry by more competitive Korean, Japanese, and European suppliers. However, high US steel prices imposed a heavy penalty on downstream US manufacturing firms. Kadee Russ and Lydia Cox explained that adverse consequence in a 2020 article.

The costly first-term precedent of steel tariffs for the manufacturing sector as a whole made no difference to Trump in his second term. Announcing the 50 percent tariff to steel workers in Pennsylvania, Trump declared: "Nobody's going to be able to steal your industry…. At 25 percent, they [foreign competitors] can sort of get over that fence. At 50 percent, they can no longer get over that fence."

With the 50 percent tariff, not only is American steel going to be less internationally competitive but so are the multitude of American industries that depend on steel as a necessary input. And for erstwhile US allies, notably the European Union, the new tariff is another finger in the eye. Canada, Mexico, and South Korea together accounted for almost half of US steel imports in 2024. Unless these countries are exempted, the 50 percent tariff threatens to undermine the two most important US free trade agreements—the United States-Mexico-Canada Agreement (USMCA) and the US-Korea Free Trade Agreement.

It remains to be seen whether the new 50 percent steel tariff will bolster US steel production or employment and prove as successful as the Tariff Act of 1870 or the McKinley tin-plate tariff in creating competitive US industries. More than 60 years of post-Second World War steel protection, starting with the Nixon administration, have not achieved those results.

In the meantime, the 50 percent tariff will almost certainly enlarge the profits of U.S. Steel, Nucor, Steel Dynamics, and ArcelorMittal—though traces of recent pro-tariff lobbying cannot be found among steel CEOs. Nevertheless, through a combination of lost jobs and higher prices, US manufacturers and American households will pay dearly for the bonanza to steel barons.

Notes

1. The report was written in consultation with the Department of Defense. However, DoD issued this contemporaneous statement: "[T]he U.S. military requirements for steel and aluminum each only represent about three percent of U.S. production. Therefore, DoD does not believe that the findings in the reports impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements."

2. Subsequent calculations raised the annual cost to $900,000 per job saved.