Metal Wars: Five things to watch for as U.S. steel and aluminum tariffs roll out

The U.S.-Canada trade war has kicked off, with Canadian steel and aluminum exports, valued at $24 billion annually¹, set to be tariffed at 25% starting today. We highlight five themes to watch for as the two economies brace for the fallout from these levies:

1. The tariffs are unlikely to reinvigorate U.S. production

The first iteration of Section 232 tariffs in 2018, triggered by U.S. national security concerns, did not meaningfully expand American steel and aluminum production capacity (production increased 7% and 4%, respectively)². This scenario will likely repeat itself. The U.S. steel industry is impeded by a far bigger challenge as China floods global steel markets with excess production capacity, ultimately hindering U.S. producers’ ability to boost domestic output. This global oversupply reached 560 million tonnes (6x U.S. consumption) in 2024, with a further 157 million tonnes of carbon-intensive capacity additions set to come online by 2026, mostly from Asian countries³.

Since Section 232 tariffs were introduced, overall U.S. imports (by weight) have fallen 15% for steel and 13% for aluminum compared to 2018. U.S. net steel imports remain at 13% of domestic consumption, while aluminum net imports are structurally higher at 47% of consumption. However, total U.S. consumption of both metals has fallen about 10% since 2018, which helps explain why import dependence hasn’t dropped as much as the raw numbers suggest⁴.

This is evident in Tables 1 and 2.

Table 1: U.S. steel consumption and net imports are stagnant

Source: U.S. Geological Survey, RBC Thought Leadership

Table 2: U.S. remains heavily reliant on imported aluminum

Source: U.S. Geological Survey, RBC Thought Leadership

2. The devil is in the details on China’s access to U.S.

Defining “steel” is no easy task, given the hundreds of tariff line items within both Harmonized System (HS) codes 72 that covers iron and steel, and 73 which accounts for articles of iron and steel. HS codes classify products for international trade, making customs and regulations easier. The U.S. has largely succeeded in shutting Chinese “steel” out of its market (as defined in HS Code 72), as they account for only US$490 million of steel imports in 2024, or about 1.6% of total imports⁵.

However, Chinese steel exports to Mexico and Canada are over three times higher, at an estimated $1.7 billion (aggregate) in 2024, or 8% of each countries’ total imports⁶. That figure is trending upwards, having more than doubled since 2017. Including Chinese proxies (Vietnam, Thailand, Indonesia, among others), total Chinese and “back door” exports from proxies to Mexico and Canada likely surpassed US$2.5 billion. Understandably, the U.S. has voiced its concerns to both countries.

Still, this ‘concern’ is dwarfed by the reality the U.S. directly imports U$14 billion worth of steel and steel products (HS Codes 72 and 73 combined) directly from China, or a quarter of its total imports of steel and steel products⁷. In comparison, Chinese steel and steel products account for only 10% of Canadian and Mexican imports, respectively⁸.

When viewed in aggregate, U.S. national security has materially improved with allies such as Canada, Japan, South Korea and Mexico having raised their steel and aluminum shipments to America over the past six years—at China’s expense. Specifically, total U.S. steel and aluminum imports from the exempted countries increased in dollar value from 51% in 2018 to 57% by 2024, with a corresponding decline from 44% to 36% for China and its ‘backyard’—a net swing of +14% (see Table 3)⁹.

Table 3: Allies boosted their market share in the U.S. at China’s expense

Source: U.S. International Trade Commission, RBC Thought Leadership

3. For all the China talk, Canada has become target number one

From a fundamental market standpoint, Canada’s exports of steel and aluminum to the U.S. have increased by 35% to US$17.7 billion since 2018. That pace of growth is greater than the global average, with the most recent years far surpassing historical Canadian growth rates. As a result, Canada’s steel and aluminum trade surplus with the U.S. has more than doubled from 2018 to more than US$9 billion last year¹⁰.

However, Mexico and Vietnam both added more to their exports during the same period both on an absolute basis (US$11.8 and US$4.9 billion, respectively) and relative basis (+62% and +410%)¹¹. The surge in Vietnamese volumes would be of particular concern to the U.S. administration—perhaps warranting a higher tariff rate. But the tit-for-tat nature of trade wars has manifested with Canada often targeted – perhaps beyond the realities of fundamental market conditions.

Lastly, and specific to Canada, it is worth noting the U.S. also has concerns on Luxembourg-headquartered ArcelorMittal’ substantial Canadian presence, likely accounting for half of total Canadian steel production. The firm has also established a strategic partnership with China Oriental Group, and is a 37% shareholder in the firm.

4. Exemptions for Canada will be hard to come by

While there is always the likelihood Trump eventually gives Canada a tariff reprieve, it remains unlikely.

Firstly, Canada’s hardening stance and tit-for-tat tariffs is creating a challenging negotiating environment. Secondly, Corporate America is unlikely to go to bat for Canada given these tariffs are sector-specific and comparatively far less economically disruptive compared to blanket tariffs.

Lastly, we have been here before: It was not until the signing of USMCA in May 2019 when Section 232 tariffs on Canada were lifted, fourteen months after they took effect.

While Canadian products may still secure an exemption if they are deemed to be ‘un-substitutable,’ it is difficult to substantiate this from the data. For steel, the U.S. is only 13% net-import reliant. Also, the end-use of Canadian steel domestically is broad-based: general manufacturing (40%), autos (20%), oil and gas (15%) and general construction (10%)¹². It is unlikely that Canadian steel is consumed in the U.S. for strategic purposes that are hard to substitute. Canadian aluminum may have better luck, given Canada represents 75% of U.S. primary aluminum imports¹³.

5. The best chance for success is to offer concessions

The clock is now ticking for Canada and the U.S.’s other trade partners. Over the next three weeks, the Trump administration will seek concessions in the run-up to April 2, the effective date for both reciprocal global tariffs and expiry of Canada and Mexico’s broad-based 25% tariff.

In the past, South Korea ‘voluntarily’ agreed to restrict exports under a quota system, which granted them Section 232 steel and aluminum exclusions. Japan entered into bilateral trade negotiations to avoid potential tariffs on autos. Canada and Mexico held out until USMCA was signed in mid-2019. Future success could only come with meaningful concessions to the U.S.

Perhaps one promising sign is that Canada is set for new political leadership, whether it be Liberal leader Mark Carney or Conservative leader Pierre Poilievre. Both present an opportunity to ‘reset’ a personal relationship with the U.S. President. This could also be a catalyst to engage in USMCA renegotiations, following a similar playbook, and appease an increasingly hawkish (and unpredictable) Trump administration.

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