Trump’s steel and aluminium tariffs target a deeper issue – but risk job losses and higher prices
Few materials matter quite as much as steel and aluminium.
Steel, an alloy of iron and carbon, is the main metallic ingredient in the structures we live in and the bridges we build. If it’s not made of steel it’s made with steel.
Aluminium, on the other hand, is a wonder material we use with wild abandon these days. A light metal we use in planes and trains, in the bodies of electric vehicles and in those high voltage power lines we’ll need so many of to provide electricity in the coming years.
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Prices to rise for planes, trains and automobiles
All of which is to say these metals are the bedrock for much of the world around us. And like most developed economies, the US is far from independent when it comes to these materials. The degree of dependence on other countries varies between them.
According to the US Geological Survey, America’s “net import reliance ratio” for aluminium is close to 50%, implying it is deeply dependent on imports to satisfy demand among its companies. The degree of dependence is considerably lower for steel – only a little over 10%.
At least part of the idea behind tariffs is to bring some production back to the US, but imposing them will have consequences.
Molten aluminium. Pic: Reuters
What kinds of consequences? Well, at its simplest, tariffs push up prices. This is, when you think about it, blindingly obvious. A tariff is a tax on a good entering the country. So if aluminium and steel are going up in price then that means, all else equal, that the cost of making everything from aircraft wings to steel rivets also goes up. That in turn means consumers end up paying the price – and if a company can’t make ends meet in the face of these tariffs, it means job losses – possibly within the very industrial sectors the president wants to protect.
Donald Trump stands on stage with steelworkers as he speaks at a campaign rally in Pennsylvania during the US election. Pic: AP
So says the economic theory. But in practice, economics isn’t everything. There are countless examples throughout history of countries defying economic logic in search of other goals. Perhaps they want to improve their national self-reliance in a given product; perhaps they want to ensure certain jobs in cherished areas or industries are protected. But nothing comes for free, and even if Donald Trump‘s tariffs succeed in persuading domestic producers to smelt more aluminium or steel, such things don’t happen overnight. In the short run, it’s hard to see how these tariffs wouldn’t be significantly inflationary.
Donald Trump on Air Force One: Reuters
There’s a deeper issue here, which comes back (as so many of Mr Trump’s economic measures do) to China. Both the steel and aluminium markets have faced enormous influxes of cheap Chinese metals in recent years – to the extent that in recent months those Chinese imports have actually been cheaper than the cost of production in Europe.
To some extent, that’s a consequence of high European energy costs, but it’s partly down to the fact that China subsidises its producers more than most other countries around the world. Indeed, of all the products in the world, few have had as many cases lodged at the World Trade Organisation as steel.
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Donald Trump shakes hands with China’s President Xi Jinping in 2019 – as in his first term, many of his policies focus on China. Pic: AP
But while it’s worth being aware of these dynamics, which are pushing cheap steel into many markets, it’s also worth noting that the US actually imports far less from China than you might have thought. The vast majority of American aluminium imports, for instance, come from Canada rather than China. Any tariffs on the metal would further undermine the economic relationship between these parts of North America.
Much, of course, now depends on the structure and detail of these tariffs – and the extent to which they’re actually implemented. As with his threatened tariffs on Canada and Mexico, these ones raise as many questions as they answer. That is likely to be the way of things for much of this presidential term.
The UK economy unexpectedly shrank in May, even after the worst of Donald Trump’s tariffs were paused, official figures showed.
A standard measure of economic growth, gross domestic product (GDP), contracted 0.1% in May, according to the Office for National Statistics (ONS).
Rather than a fall being anticipated, growth of 0.1% was forecast by economists polled by Reuters as big falls in production and construction were seen.
It followed a 0.3% contraction in April, when Mr Trump announced his country-specific tariffs and sparked a global trade war.
A 90-day pause on these import taxes, which has been extended, allowed more normality to resume.
This was borne out by other figures released by the ONS on Friday.
Exports to the United States rose £300m but “remained relatively low” following a “substantial decrease” in April, the data said.
Overall, there was a “large rise in goods imports and a fall in goods exports”.
A ‘disappointing’ but mixed picture
It’s “disappointing” news, Chancellor Rachel Reeves said. She and the government as a whole have repeatedly said growing the economy was their number one priority.
“I am determined to kickstart economic growth and deliver on that promise”, she added.
But the picture was not all bad.
Growth recorded in March was revised upwards, further indicating that companies invested to prepare for tariffs. Rather than GDP of 0.2%, the ONS said on Friday the figure was actually 0.4%.
It showed businesses moved forward activity to be ready for the extra taxes. Businesses were hit with higher employer national insurance contributions in April.
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The expansion in March means the economy still grew when the three months are looked at together.
While an interest rate cut in August had already been expected, investors upped their bets of a 0.25 percentage point fall in the Bank of England’s base interest rate.
Such a cut would bring down the rate to 4% and make borrowing cheaper.
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Analysts from economic research firm Pantheon Macro said the data was not as bad as it looked.
“The size of the manufacturing drop looks erratic to us and should partly unwind… There are signs that GDP growth can rebound in June”, said Pantheon’s chief UK economist, Rob Wood.
Why did the economy shrink?
The drops in manufacturing came mostly due to slowed car-making, less oil and gas extraction and the pharmaceutical industry.
The fall was not larger because the services industry – the largest part of the economy – expanded, with law firms and computer programmers having a good month.
It made up for a “very weak” month for retailers, the ONS said.
Monthly Gross Domestic Product (GDP) figures are volatile and, on their own, don’t tell us much.
However, the picture emerging a year since the election of the Labour government is not hugely comforting.
This is a government that promised to turbocharge economic growth, the key to improving livelihoods and the public finances. Instead, the economy is mainly flatlining.
Output shrank in May by 0.1%. That followed a 0.3% drop in April.
Ministers were celebrating a few months ago as data showed the economy grew by 0.7% in the first quarter.
Hangover from artificial growth
However, the subsequent data has shown us that much of that growth was artificial, with businesses racing to get orders out of the door to beat the possible introduction of tariffs. Property transactions were also brought forward to beat stamp duty changes.
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In April, we experienced the hangover as orders and industrial output dropped. Services also struggled as demand for legal and conveyancing services dropped after the stamp duty changes.
Many of those distortions have now been smoothed out, but the manufacturing sector still struggled in May.
Signs of recovery
Manufacturing output fell by 1% in May, but more up-to-date data suggests the sector is recovering.
“We expect both cars and pharma output to improve as the UK-US trade deal comes into force and the volatility unwinds,” economists at Pantheon Macroeconomics said.
Meanwhile, the services sector eked out growth of 0.1%.
A 2.7% month-to-month fall in retail sales suppressed growth in the sector, but that should improve with hot weather likely to boost demand at restaurants and pubs.
Struggles ahead
It is unlikely, however, to massively shift the dial for the economy, the kind of shift the Labour government has promised and needs in order to give it some breathing room against its fiscal rules.
The economy remains fragile, and there are risks and traps lurking around the corner.
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Concerns that the chancellor, Rachel Reeves, is considering tax hikes could weigh on consumer confidence, at a time when businesses are already scaling back hiring because of national insurance tax hikes.
Inflation is also expected to climb in the second half of the year, further weighing on consumers and businesses.
Business
Government to announce new scheme as it ramps up AI adoption with backing from Facebook owner Meta
The government is speeding up its adoption of AI to try and encourage economic growth – with backing from Facebook parent Meta.
It will today announce a $1m (£740,000) scheme to hire up to 10 AI “experts” to help with the adoption of the technology.
Sir Keir Starmer has spoken repeatedly about wanting to use the developing technology as part of his “plan for change” to improve the UK – with claims it could produce tens of billions in savings and efficiencies.
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The government is hoping the new hires could help with problems like translating classified documents en masse, speeding up planning applications or help with emergency responses when power or internet outages occur.
The funding for the roles is coming from Meta, through the Alan Turing Institute. Adverts will go live next week, with the new fellowships expected to start at the beginning of 2026.
Technology Secretary Peter Kyle said: “This fellowship is the best of AI in action – open, practical, and built for public good. It’s about delivery, not just ideas – creating real tools that help government work better for people.”
He added: “The fellowship will help scale that kind of impact across government, and develop sovereign capabilities where the UK must lead, like national security and critical infrastructure.”
The projects will all be based on open source models, meaning there will be a minimal cost for the government when it comes to licensing.
Meta describes its own AI model, Llama, as open source, although there are questions around whether it truly qualifies for that title due to parts of its code base not being published.
The owner of Facebook has also sponsored several studies into the benefits of government adopting more open source AI tools.
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Mr Kyle’s Department for Science and Technology has been working on its mission to increase the uptake of AI within government, including through the artificial intelligence “incubator”, under which these fellowships will fall.
The secretary of state has pointed to the success of Caddy – a tool that helps call centre workers search for answers in official documents faster – and its expanding use across government as an example of an AI success story.
He said the tool, developed with Citizens Advice, shows how AI can “boost productivity, improve decision-making, and support frontline staff”. A trial suggested it could cut waiting times for calls in half.
My Kyle also recently announced a deal with Google to provide tech support to government and assist with modernisation of data.
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Joel Kaplan, the chief global affairs officer from Meta, said: “Open-source AI models are helping researchers and developers make major scientific and medical breakthroughs, and they have the potential to transform the delivery of public services too.
“This partnership with ATI will help the government access some of the brightest minds and the technology they need to solve big challenges – and to do it openly and in the public interest.”
Jean Innes, the head of the Alan Turing Institute, said: “These fellowships will offer an innovative way to match AI experts with the real world challenges our public services are facing.”
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