The U.S. Government’s recent move of imposing 25% tariff on imported steel and 10% on imported aluminum has spurred concerns among investors about certain U.S. sectors, particularly construction — which relies heavily on steel and aluminum for raw material. This has resulted in a widespread fear of retaliation from America’s trading partners around the world, leading to concerns of a trade war which might upset the entire global economy.
Per data provider Statista, the construction industry accounted for two-fifths of U.S. steel demand in 2017. Being an integral part of the supply chain, steel is widely used in every part of the supply chain, from sourcing raw material to construction and manufacturing activities as well as for freight purposes.
The latest proposal, which is in sync with President Trump’s “America First” policy, has been designed with hopes of reviving steel prices and increasing the pricing power of U.S. steelmakers. However, the move has left other sectors, including construction and its supply chain, apprehensive about higher input costs and contracted margins.
In fact, the impact of the policy on the supply chain and downstream activities in the construction sector has already stoked fear among investors. Also, they have been worried about the adequate availability of domestic steel in the market that might lead to supply constraints and higher prices.
Given this backdrop, let’s find out the impact of tariffs on imported steel and aluminum on construction stocks and other vulnerable sectors.
Impact of the Tariffs
Although the announcement has been a positive one for American steelmakers, it has left consumers of the metals including construction, automobiles, and machinery anxious about higher tariffs that might inflate their manufacturing costs. The expected increase in the price of raw materials would inflate manufacturing costs, thereby making downstream U.S. industries (which are already grappling with higher costs due to recent lumber tariffs) in the construction sector less competitive.