Will the 25% steel and aluminum tariffs work?

The United States trade deficit swelled to almost $920 billion in 2024 — and that gap is 17% wider than it was the year before. Americans are importing more than we’re selling, which puts the U.S. economy in a weak position.

As the Trump administration announces more trade policies, questions about the impact of raw material tariffs arise for both U.S. manufacturers and consumers.

A brief tariff history

During his first term in office, President Trump enacted a 25% tariff on imported steel and a 10% tariff on imported aluminum, with a handful of exceptions, including Canada and Mexico. The policy was intended to increase domestic production and lower costs.

However, less than a year after the 2018 tariff was put in place, rising demand outpaced U.S. production, and U.S. manufacturers were already looking to import steel and aluminum from low-cost countries like China, India and Indonesia.

U.S. aluminum and steel production has still not returned to 2017 levels. Part of that can be attributed to the COVID-19 pandemic, during which most American manufacturers temporarily shut down while Asian suppliers continued to produce. When U.S. manufacturers reopened, Asian countries had become the primary sources of aluminum and steel.

China remains the world’s top steel producer, but Canada is a far more significant source for the U.S. Canada is the top source of U.S. steel imports, supplying 6.56 million tons in 2024, while China supplied just over 0.5 million tons to American manufacturers.

The 2025 tariffs: No exceptions

A universal tariff designed to level the playing field with Asian countries is mostly going to impact our North American neighbors. However, it may not be that simple. U.S. officials have long been aware that some low-cost countries (including China and Russia) have been commingling their steel with metals produced in Mexico to avoid paying U.S. import duties. This practice, known as transshipment, was acknowledged as a problem by the Biden administration in early 2018.

The latest tariffs that President Trump announced in February 2025 were designed to respond to that commingling practice. By eliminating exceptions and loopholes in the standing 2018 tariffs and raising the aluminum levy from 10% to 25%, the latest order effectively imposes a 25% tariff on all steel and aluminum imports from all foreign nations. (It is worth clarifying that the latest policy is not an additional 25% surcharge on those 2018 tariffs.)

Will tariffs help U.S. manufacturers — or will they lead to higher prices?

Aluminum and steel are critical for American industries, particularly aircraft and automotive manufacturing, construction and infrastructure. They also affect the production of energy-generation equipment and consumer goods.

These businesses need to be able to purchase steel and aluminum at a fair price — and quickly to meet customer demand. Whether these tariffs will work as intended — or simply drive up prices — depends on one key question: Can U.S. suppliers keep up?

Seven years ago, domestic steel and aluminum production was unable to keep pace with demand. Evidence suggests that domestic aluminum capacity may be worse now than in 2018. Two major aluminum smelters closed since the 2018 tariffs were implemented, and U.S. aluminum production decreased by 30% from 2020 to 2024.

The outlook for domestic steel production is more positive; the steel industry has benefited from $10 billion in investment over the last decade, and production capabilities have increased since the last round of tariffs.

In this supply chain scenario, the most likely outcome is that U.S. companies will pay the 25% tariff to import their steel and aluminum to get the amount and type they require on timelines that meet their project needs. Just as in 2018, domestic metal production may increase in the short term, but until onshore facilities can produce 100% of the U.S. demand, manufacturers — and consumers — will pay higher prices.

How Wipfli can help

Wipfli can help you respond to regulatory changes. Our manufacturing and distribution advisory team is ready to help you adapt to new challenges, find ways to mitigate risk and uncover opportunities. Get the advice and perspective you need today. Visit our manufacturing and distribution page to contact us or learn more.