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Steel tariffs: a cause of concern?

(Image Courtesy: David J. Fred, Wikimedia Commons)

President Donald Trump has imposed import tariffs of 25% on steel and 10% on aluminum. Canada and Mexico are exempted from this duty as a result of the North America Free Trade Agreement (NAFTA).

This decision has raised concerns among some in the US steel industry, namely on the West Coast and in Shreveport. The largest steel plant on the West Coast, California Steel, imports enormous portions of steel as raw material. Out of this, the plant makes steel plates, coils, and other finished products which it sells to its customers.

Apart from competitive hurdles, there is the issue of higher transportation costs. The cost of transporting imported steel from countries like Brazil to California is much lower compared to the cost of transporting them all the way from the other end of the United States.

The case is similar in Shreveport, Louisiana. The new tariffs are yet to go into effect, but businesses are seeing increases in raw material costs.

Apart from raw material, there are chances of increases in transportation and distribution costs. These costs will ultimately have to be passed on to the customer, which is seldom preferred.

The steel companies fear that as prices go up, customers are likely to reduce their purchases and scale back on their projects. In some cases, projects could be completely shelved. This would not just lead to loss of revenues for the companies but would not bode well for the industrial sector either.

Trade partners have meanwhile warned that this decision could ignite a trade war. Although Trump’s decision appears to target China, it is less likely to hurt China and more likely to harm US allies like Europe. Europe is not at all pleased with the new rules and is planning a reciprocation of its own.

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