Donald Trump doubles steel and aluminium tariffs – what does it mean for markets?

Steel and aluminium imports coming into the US will face additional tariffs from this Wednesday (4 June), after Donald Trump announced the levy would be doubled from 25% to 50%. It looks like the UK will be impacted by the policy, despite recently agreeing a trade deal with the US to reduce existing metal tariffs to zero.

The US-UK trade deal was announced on 8 May, but the original 25% metal tariff has been kept in place while full details are worked out. Trade secretary Jonathan Reynolds is expected to meet with his US counterpart Jamieson Greer this week to determine a timeline for lifting the tariffs on the UK.

Car tariffs are also likely to form part of the conversation, after the US agreed to reduce these from 25% to 10% on a quota of up to 100,000 cars.

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“The announcement that US steel tariffs could jump up to 50% on Wednesday is yet another body blow for all UK steelmakers in this torrid time,” said Gareth Stace, director general at trade group UK Steel. “UK steel companies are this morning fearful that orders will now be cancelled, some of which are likely being shipped across the Atlantic as we speak.”

The US is the UK’s second most important export market for steel, according to the industry body, worth around £400 million and totalling 9% by value of exports. The Aluminium Federation has also expressed alarm at the announcement and is seeking clarity from the Department for Business and Trade.

The UK steel and aluminium industries are small compared to other areas of manufacturing, but the tariffs will still cause disruption.

The steel industry’s output was £1.7 billion last year, according to the Office for National Statistics, equivalent to 0.1% of the UK economy. The aluminium industry contributes around £1.9 billion, according to estimates from the Aluminium Federation and the University of Strathclyde.

Tariffs on the car industry could have a greater impact given the sector contributed £21 billion to the UK economy last year, equivalent to 0.9% of economic output. The US is the UK’s largest export partner for cars, accounting for 27% of total exports last year, equivalent to £9 billion.

Data from the Society of Motor Manufacturers and Traders (SMMT) shows the number of vehicles manufactured in the UK plunged 16% in April as US tariffs hit production. Just over 59,200 vehicles were made – the lowest April output figure for more than 70 years, excluding 2020 when the first Covid lockdown hit manufacturing.

Responding to the latest tariff announcements, a government spokesperson told MoneyWeek: “The UK was the first country to secure a trade deal with the US earlier this month and we remain committed to protecting British business and jobs across key sectors, including steel.

“We are engaging with the US on the implications of the latest tariff announcement and to provide clarity for industry.”

What do the latest tariff announcements mean for markets?

Equity markets dipped on Monday morning in response to the latest tariff announcements. This was partly driven by heightened rhetoric between the US and China, as well as the higher metal tariffs.

Tensions between the two countries briefly deescalated in May following a meeting in Geneva, with the US reducing tariffs against China from 145% to 30%, and China cutting retaliatory tariffs from 125% to 10%, both for an initial 90-day period.

However, Trump has since accused China of “totally violating” its agreement with the US. The president did not provide any further details, but US trade representative Jamieson Greer said China had not removed other non-tariff barriers as agreed.

China responded by demanding that the US “immediately correct its erroneous actions, cease discriminatory restrictions against China and jointly uphold the consensus reached at the high-level talks in Geneva”.

Commenting on the implications for markets, Russ Mould, investment director at platform AJ Bell, said: “Doubling import taxes on steel and aluminium and aggravating China once again means we face a situation where uncertainty prevails. Trump’s continuous moving of the goal posts is frustrating for businesses, governments, consumers and investors.”

Despite this, investors are getting used to rapid policy shifts from the US president, with Wall Street even coining a new theory known as the TACO trade. This stands for “Trump Always Chickens Out”. So far, the pattern has been one of aggressive policy statements which are gradually rolled back into something more manageable.

“We’re back in a situation of one step forward, two steps back, but there do appear to be expectations that more concessions will be struck,” said Susannah Streeter, head of money and markets at platform Hargreaves Lansdown.

The legal basis underpinning Trump’s tariffs has also been deemed unlawful by the US Court of International Trade, in a decision ruled on 29 May. The announcement lifted markets last week. Trump’s administration has indicated that it will appeal the decision. The appeals process could run on for some time and potentially go all the way to the Supreme Court.