WSD Strategic Insights CLXXXVIII: Tariff “Wild Cards”

Enter the USA “wild cards” throughout the election cycle, “strengthened borders” had ranked near the top of voters’ priority list, often right below the economy.  As we begin the Trump Presidency sequel, it is clear that the incoming administration is planning to wield tariffs as a critical negotiating tool. The possibility of tariffs on “ALL” products coming from Mexico and the Canada throws a series of wild cards into the mix.

• In the longer term, if imports are taxed at 25%, WSD foresees a possibility of an ensuing inflationary event. The 11+ million net tons of steel imported into the U.S. from Mexico and Canada accounts for more than 10 percent of steel consumed in the United States, and the immediate levy of a 25 percent tax would be undoubtedly inflationary for the U.S. market.

• Furthermore, there is the issue of imported scrap. In 2023, the USA imported nearly 2 million tons of shredded and prime scrap from Canada with 4.7 million tons of scrap imports in total. Supply-demand dynamics for scrap (particularly premium grades) are already in the process of tightening with the opening of three new EAFs in the USA/Canada over the next six months: U.S. Steel’s BRS-II facility, ArcelorMittal’s Calvert facility, and Algoma’s new EAF. An additional 25 percent cost for a sizeable portion of the scrap market supply (from the viewpoint of USA sheet mills) is material. 

• Taken together, the wild card effect of a 25 percent “All products tariff” should be viewed as a potential price-floor raising event for USA HRC prices in the first half of 2025. (Note: WSD views the long-term implementation of these measures as far from assured – although the measure could be put into effect initially, a prolonged negotiation with both Canada and Mexico is likely to follow as the USMCA is essentially re-written with the ultimate outcome for steel-related items (including steel products and raw materials such as scrap) likely to reflect a more moderate rate of tariffs, if any.)