Trump's Steel Tariff Proposal May Not Come To Pass
Summary
- President Trump has announced that steel and aluminum tariffs will be imposed.
- If history is any guide, however, these tariffs will not last.
- Investors would be wise not to get caught up by this announcement.
Steel stocks surged on Thursday, March 1st, when President Donald Trump announced that he will sign a measure that will impose a 25% tariff on steel and a 10% tariff on aluminum. The announcement comes on the heels of a "listening session" at the White House that Trump held with chief executives from relevant companies such as John Ferriola of Nucor Corporation (NUE) and Mike Bless of Century Aluminum Company (CENX). To quote Trump himself:
Sometime next week we'll be signing it in. And you're going to have protection for the first time in a long time.
Image from Newsweek.
How lasting such protection is likely to be is something that investors should think about first. If history is any guide, such protectionist proposals are unlikely to be permanent.
On March 6th, 2002, nearly sixteen years ago, President George W. Bush imposed tariffs of up to 30% on steel imports from Asia, Europe and South America. He stated that the tariffs would be in place for three years to permit American steel firms to recover from the same problem they face now - low steel prices due to cheap steel from foreign countries. To quote President Bush:
I decided that imports were severely affecting our industry, an important industry, in a negative impact, and, therefore, provide temporary relief so that the industry could restructure itself.
However, on December 4th, 2003 - twenty one months after the initial measure - Bush lifted the tariffs, stating that the U.S. steel industry was now healthy, in stark contrast to those within the industry who argued that more time was needed to recover. The real reason, however, was more straightforward - international pressure, especially from Europe and Japan, forced Bush to lift the tariffs well ahead of the initial March 2005 expiration date.
Image from Reuters.
Trump will have to reckon with similar international reaction, particularly from China, which has been accused of flooding the market with cheap steel and aluminum - an accusation that the Chinese deny, and retaliatory measures from Beijing are likely should this measure go ahead. Opposition from the rest of the world is also likely, and so the idea that this latest effort at protectionism will last is therefore unlikely.
So for investors who believe that this latest announcement from the Oval Office makes steel and aluminum stocks such as Nucor - which rose +3.9% after the announcement - and Century Aluminum - which rose +10.7% - seem like sure things, or even broad ETFs such as the iPath Pure Beta Aluminum ETN (FOIL) and the VanEck Vectors Steel ETF (SLX), long term all these steel and aluminum investments are likely to end up as disappointments, if history is any guide. Best to treat this news as short-term noise that has popped stocks in the steel and aluminum sector for the short term, but will not lead to any long-term benefit.
Disclaimer: The author is not a financial professional and accepts no responsibility for any investment decisions a reader makes. This article is presented for information purposes only. Furthermore, the figures cited are the product of the author's own research and may differ from those of other analysts. Always do your own due diligence when researching prospective investments.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (9)
I personally disagree with her, though I think the President and Congress could have done a lot more to gain the support of Congress, various parts of industry, and the unions.. But I respect Warren for standing up for what she believes in despite any political fall out. I'm tired of the GOP members constantly hurling partisan complaints about "Liberals"... They are being divisive, bad for the country. They should remember the real history here and stop trying to rewrite it. GOP members are also pushing the kind of radical and angry sounding rhetoric that causes some to lose their objectivity about various topics and issues. Enough already. We had the GW Bush years, which left the USA in economic danger. Obama helped to set that ship right. GOP should be thankful that they had so much varied backing that they got into office despite Obama's obvious success. The latest round of votes was a disaster... many voters lost their right to vote due to a new computer system called "Crosscheck".. and some states have abandoned that program due to problematic results. Let's hope 2018-2019 leads us into a new more unified phase and away from this wretched name calling hostility that has no place in the White House or in US politics in general.On to what's best for the country."THE WALL STREET JOURNAL
As GOP considers blocking tariffs, Elizabeth Warren, other Democrats back Trump"
Published: Mar 12, 2018
http://bit.ly/2GkVWW3"Republican lawmakers are openly discussing legislation to limit President Donald Trump’s trade powers after the White House detailed plans last week to impose global tariffs on U.S. imports of steel and aluminum.But the support of key Democrats — including Sen. Elizabeth Warren, D.-Mass. — for Trump’s “America first” approach to trade stands to complicate any GOP effort to tie the president’s hands."
