Trump's Tariffs Could Hamper Much-Needed Steel Decarbonization

In a bid to move the US off foreign products and " take other countries' jobs", the Trump administration has imposed a 25% tariff on all steel and aluminum imports. This isn't new. Similar policies were seen in 2018 under his first administration, but its breadth today is much broader and is set to affect $1.4 trillion worth of goods as opposed to $380 billion in 2018 and 2019. It's also more targeted, as seen by last week's announcement of a 25% tariff on foreign-made cars and car parts—an industry that is the second-largest consumer of domestic steel.

Among the immediate consequences are stock market fluctuations and broader economic uncertainty. Yet a critical, though less discussed, question remains: how will these tariffs affect clean steel decarbonization efforts? While some, like the CEO of Cleveland Cliffs, one of the largest steel producers in the US, have praised the recent policy changes, experts have cautioned against the uncertainty this would introduce for climate progress. 

Nonetheless, understanding the impacts of Trump's new tariffs shouldn't be tough, considering the hindsight we now have from his first presidency. One of the first direct results of tariffs is a rise in the prices of the related products, allowing domestic producers to rake in more profits and boosting employment. But crucially, they disincentivize industries that rely on those products, making costs higher and prices costlier for consumers. Research found that 75,000 manufacturing jobs had to be laid off following the 2018 tariffs to absorb the higher costs. Moreover, a 2024 study by the Federal Reserve Board also revealed a significant decline in projected manufacturing demand following the tariffs, as illustrated in the figure below.

Graph Provided by Federal Reserve Board

One thing is clear: global steel demand will continue growing. Vaclav Smil, a prominent energy analyst, highlights this clearly in his book How the World Really Works; from street light poles to life-saving machines in hospitals to the oil and gas sector, steel touches almost every sector in our economy. And in the shift to a clean energy system, the role of steel becomes even more crucial. For example, generating 1 kWh from a 14 MW offshore wind turbine requires 50 times more steel than generating the same amount from a fossil fuel plant. This underscores how, without a robust green industrial policy, the United States risks falling behind in technological innovation and stagnating its once-dominant steel industry.

Cleaning up the steel industry, responsible for 7% of global CO2 emissions and 2,000 deaths per year in the US, means transitioning away from coking coal-based blast furnaces to electric arc furnaces (EAFs) powered by clean hydrogen, steel scrap, and electricity. The U.S. is already ahead in this transition, with EAFs accounting for 70% of domestic steel production (compared to 30% globally). However, natural gas, not clean hydrogen, remains the primary reductant. Given that the U.S. remains one of the largest net importers of steel, and considering the current administration's stringent policies on reducing foreign reliance, addressing this dependency will require significant investment in new domestic steelmaking capacity. 

When asked if recent policies would further delay producers from switching to green steel to protect margins, Yong Kwon, Senior Policy Advisor at Sierra Club, shed some light: "If there were strong movements from the domestic primary steelmakers to transition to new iron reduction technologies that release near-zero greenhouse gases, the tariffs could be an instrument to shield the domestic steel industry while the costly technology adoption is taking place. However, absent such movements, the tariffs artificially buoy capacity utilization and make relining of existing blast furnaces more enticing than adopting emerging technologies for domestic primary steelmakers.". In short, the industry in the US is too young to benefit from these tariffs and will instead be stalled.

In contrast, the Biden administration understood the importance of the steel transition in its Inflation Reduction Act and Infrastructure and Investment Jobs Act (IIJA), which allocated $1.5 billion for six iron and steel decarbonization projects. While a strong start, these projects are projected to save only 4% of the US steel emissions, highlighting the need for continued investment.

This issue is only compounded by the new tariffs on automakers. Among major automakers in North America and Europe, only four have pledged to procure fossil-free steel by 2030, accounting for just 2% of their global steel use. Considering that off-takers, like the automaker industry, are key to kickstarting green hydrogen, it is easy to see why their willingness to procure clean steel may decline. And while Trump might see "tariffs" as the most beautiful word in the dictionary, investors dread the word "uncertainty". Case in point: Atlas Agro has delayed the final investment decision on its $1.5bn green-hydrogen-based fertilizer plant in Washington state, which was due to come online in early 2025, stating that the recent tariffs are the primary concern.  

Without a stringent green industrial policy, the US risks not only succumbing to climate change impacts but also geo-strategically missing out on being a dominant exporter of green technologies and repeating history. If US Steel, once the dominant domestic and global steel producer whose decline was driven by its obstinate desire not to innovate, doesn't prove a valuable lesson for the current administration, it's hard to imagine what will.