US Steel Tariffs: Looking Beyond the Headlines
Indian markets are once again on the edge following the Trump administration's decision to impose a steep 25% tariff on all steel and aluminium imports to the US. After a mild rebound last week post the Union Budget, this new trade policy shift has reignited investor concerns, particularly fears of an escalating global trade war.
However, this move should be viewed in context - it effectively replaces the broader 25% tariffs announced earlier on Mexico and Canada, which have now been put on hold. This targeted approach primarily impacts these nations - Canada is the top supplier of both metals to the US, accounting for 22% of total US steel imports and 40% of aluminium imports, while Mexico accounts for 12% of their steel imports.
This revised tariff strategy suggests that the US may have negotiated concessions from Canada and Mexico in exchange for exemptions from broader tariffs. In this context, these metal tariffs should not be seen as a new imposition but as part of a balancing act in ongoing US trade realignments.
To counteract excessive steel imports, the Indian government is expected to introduce 15-25% safeguard duties in the coming months. However, rather than implementing flat duties, a sector-specific approach might be more beneficial.
For India, the direct impact should be limited. Exports to the US account for <5% of India's total steel exports, or about 95000 tonnes out of the total production of 145 million tonnes. However, aluminum exports might face some pressure, with the US market accounting for 12% of India's exports.
India's Steel Industry Is Already Under Pressure
The larger challenge for India's steel industry lies elsewhere.
The Steel sector's performance in Q3 FY25 reflects this stress, with profit after tax (PAT) declining by over 30% yoy, significantly underperforming the overall corporate sector's +6% growth.
India’s Upcoming Safeguard Duties
To counteract excessive steel imports, the Indian government is expected to introduce 15-25% safeguard duties in the coming months.
However, rather than implementing flat duties, a sector-specific approach might be more beneficial. While protection might be needed in sectors like construction and infrastructure where India has established capabilities and does not require new technology transfer, other industries like electronics manufacturing and white goods - which rely extensively on Chinese R&D and investments - might benefit from more calibrated duties. Such sector-specific duty imposition would encourage FII investments and help optimize GDP growth in the long run.