The market’s biggest trades sending skeptical message on U.S. stocks

Key Takeaways:

• U.S. doubles steel import tariffs from 25% to 50%.
• U.S. steel prices expected to rise sharply, impacting manufacturers.
• European steel industry faces oversupply and price pressures.
• Some European manufacturers may benefit from lower steel prices.
• Uncertainty about the tariff’s duration with potential lobbying for reversal.

Trump’s Surprise Tariff Hike Shocks Markets

U.S. President Donald Trump surprised markets yet again with an abrupt announcement on Friday that he will hike tariffs on steel imports from 25% to 50% on Wednesday. The move has sent ripples through the global steel industry, raising concerns about soaring prices in the United States and oversupply in Europe.

Rising Steel Prices in the U.S.

Analysts predict a severe inflationary impact on U.S. domestic prices as a result of the higher tariff rate. “This was an absolute surprise. Already steel prices in the U.S. are higher than anywhere else, and it is a net importer which needs to have volumes coming in. All this does is raise prices there,” said Josh Spoores, head of steel Americas analysis at CRU.

Major steel exporters to the U.S., including Canada, Mexico, Brazil, South Korea, and Germany, are set to feel the immediate effects. The increased costs are expected to “affect a massive community of manufacturers which make a huge contribution to GDP and employment,” Spoores noted. He added that there will likely be significant lobbying efforts to reverse the policy due to its potential impact on the U.S. manufacturing sector.

European Steel Industry Faces Oversupply

In Europe, the tariff hike could exacerbate an already struggling steel industry. With steel potentially redirected from the U.S. to European markets, oversupply may increase, applying “increased downward pressure to selling prices,” according to Kaye Ayub, head of price analysis and forecasts at U.K.-based steel market consultancy MEPS International.

“Steel demand is already low across Europe, eroding prices and domestic steelmaker’s profit margins. This has forced many producers to cut production and close plants as they struggle to compete with low-cost steel imports produced in countries where production costs are much lower,” Ayub explained.

The European Union sharply criticized Trump’s announcement, arguing that the decision “adds further uncertainty to the global economy and increases costs for consumers and businesses on both sides of the Atlantic.”

Potential Gains for European Manufacturers

Despite challenges, some European manufacturers might benefit from lower steel prices. “Some manufacturers in Europe might do better building products that are steel intensive at home and exporting them to the U.S. as prices rise there,” Spoores suggested. Industries such as automotive, construction products, and appliances are poised to feel the impact.

Corporate Concerns and Market Reactions

Not all companies stand to gain. Rella Suskin, equity analyst at Morningstar, noted that Germany’s BMW had flagged a negative effect from the existing 25% steel and aluminum duties, estimating losses “to the tune of a high three-digit million amount.” BMW shares were 1.8% lower in early afternoon deals on Monday, with the wider European automotive sector down by the same margin.

Danish wind energy developer Orsted could also be negatively impacted. Citi analysts led by Jenny Ping indicated that since Orsted does not have a local offshore wind turbine supply chain in the U.S., the increased tariffs could pose significant challenges.

Uncertainty in the U.K. Steel Industry

The United Kingdom faces additional uncertainty, having announced the outline of a U.S. trade deal in May but not yet securing an exemption from steel tariffs. Gareth Stace, head of industry body UK Steel, expressed concern that domestic steel firms are “fearful that orders will now be canceled, some of which are likely being shipped across the Atlantic.”

Questions About the Tariff’s Longevity

Analysts question how long the heightened tariffs will remain in effect. “I don’t expect this to be policy in three months. Even three weeks it’s unclear,” Spoores told CNBC. He emphasized that the tariffs, set at such a high level, could prompt considerable lobbying from U.S. manufacturers adversely affected by the increased costs.

Conclusion

Trump’s latest tariff escalation underscores the complexities of global trade policies and their far-reaching impacts. While U.S. steelmakers may benefit from higher selling prices, manufacturers face increased costs, and European industries grapple with oversupply and dwindling profit margins. As uncertainty looms, businesses worldwide are bracing for the potential long-term effects of this significant policy shift.