Trump’s plan to slap tariffs on steel and aluminium could affect Indian manufacturers

The impact of tariffs on the import of steel and aluminium will make a host of goods from cars to canned beer, more expensive in the U.S. market.

Credit: REUTERS/Peter Power


On March 1, 2018, United States President Donald Trump made good his election promise to revise existing trade laws and overturn the trade deficit with countries he accuses of dumping and currency manipulation. The first step in this regard has been to officially propose tariffs on imported steel and aluminium. Under the new regime, imported steel will be slapped a tariff of 25%, while aluminium sourced from overseas will be dearer by 10%.

Trump followed through with his threats by announcing on Friday, his decision to impose the aforementioned tariffs on all countries except Mexico and Canada, with who the U.S. administration is working out a refurbished North American Free Trade Agreement. Ironically, both of these countries cumulatively contribute to a quarter of steel imports into the U.S. Canada was the largest steel exporter to the U.S. with 16% of the market share while Mexico shipped 9% of all finished steel products that were consumed in the U.S.

The impact of tariffs on the import of metals will be wide-ranging since steel and aluminium are raw materials for a number of industries, and any change in pricing will make a host of goods from cars to canned beer, more expensive in the U.S. market. Furthermore, Trump has expressed desire to slap tariffs on European cars, a move that could spark a trade war and draw the EU into slapping reciprocal tariffs on American exports. The rise of commodity costs owing to the imposition of tariffs on steel and aluminium could have a domino effect on the U.S. economy, with looming inflation a realistic possibility.

The Indian steel industry has been on an upswing, with increased demand fuelling high prices. Operational capacity has also remained steady. The S&P BSE Metal index is up 22.7% from the year-ago period. However, the United States’ proposal to impose steep tariffs on finished steel imports could upset the applecart, even though India accounts for only 2.4% of total imports to the U.S. The corresponding value for aluminium is 2%.

In terms of scale, the U.S. is a relatively small market for Indian steel exports, but the erection of trade barriers by the Trump administration can indirectly affect steel prices worldwide, including in India. According to a Joint Plant Committee (JPC) report, the total production of finished steel products stood at 88.59 million tonnes (MT) for the period from April 2017 to January 2018. This represents an increase of 5.3% over the corresponding period last year.

The report published by the monitoring agency affiliated to the Ministry of Steel also reveals the industry’s growing export capability. For the duration of the survey, India’s exports increased 40.2% over the year-ago period. This highlights the increasing importance of exports to steel manufacturers in the country. While tariffs could make Indian steel less attractive to American buyers, it could lead to a glut in production, and a corresponding depression in prices.

To absorb the excise burden, countries exporting to the U.S. could either reduce prices to remain competitive or look for other markets where the domestic industry is ill-equipped to meet demand. India has alternated between being a net importer of steel and a net exporter. The recent trend points towards a robust domestic industry which supplies the lion’s share of fully finished steel to local consumers and ancillary industries. According to data compiled by the India Brand Equity Foundation (IBEF), India is set to be a net exporter of iron in FY2018, the second year in succession.

According to data furnished by the International Trade Administration, an organisation affiliated to the U.S. Department of Commerce, exports to India’s top ten export markets for finished steel products accounted for 73% of total outflows of the commodity. Trade of steel to Vietnam, Italy and Nepal accounted for 14%, 12%, and 10% of the total trade in steel. The U.S. ranked seventh in the list of Indian steel exports.

The Export Import Data Bank maintained by the Department of Commerce reveals that in 2016-17, India traded iron and steel worth ₹2,211 crore with the U.S. This represents only 0.78% of the aggregate trade between the two countries. India has a trade surplus of ₹133,352.61 with the U.S., its second largest trade partner after China. However, the relatively small share of steel in the overall trade mix could have a bigger impact since it is a feeder for other industries.

At the present levels of production, any barrier to global trade can disrupt the steel industry, leading to a fall in global prices. This could consequently lead to a deluge of cheap imports into the Indian market, dampening the mood of domestic producers. The S&P BSE Metal index fell by 5% after Trump announced his intention to slap tariffs on steel and aluminium imports. Anti-dumping measures can safeguard the interests of the Indian steel and aluminium manufacturers in the domestic market, but the imposition of steep tariffs could take the sheen out of Indian steel in the global marketplace.

Trump announced on Friday that the U.S. is planning to adopt a reciprocal tax programme to reduce its trade deficit. Under a reciprocal tax regime, import tariffs will mirror those the exporting country slaps on the movement of the same commodity in the reverse direction.

The fears that any escalation could spark a trade war has not boded well for commodities markets across the world. The assumption that India would be insulated from a recoil in global steel prices set off by Trump’s import tariff plan, is optimistic. Even though the majority of finished steel produced in India is consumed locally, Joint Plant Committee data points to a vulnerability arising out of exports acquiring greater importance to manufacturers.

Source :

The Hindu

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