U.S. automakers struggle under new steel tariff

U.S. automakers are underperforming their European and Japanese rivals as a 50% tariff on imported steel and aluminum raises the potential for increased costs to manufacturers at a time when tariffs are already requiring mitigation efforts.

To address the decline in domestic steel production and reduce dependence on foreign-made steel, President Trump on Friday hiked the tax on imported steel from 25% to 50%. The U.S currently imports roughly half its steel from Canada, Brazil, and Mexico with 40% from Canada and Mexico alone.

The auto industry’s increased reliance on imported steel evolved in tandem with regulatory measures and decrease in domestic production. Concerns about vehicle safety in the mid-60s led to the National Traffic and Motor Vehicle Safety Act and Highway Safety Act of 1966 and the increase the composition of steel in U.S. vehicles to ~3,000 pounds. But in the late seventies, the focus shifted to fuel efficiencies and emission controls, resulting in the construction of lighter vehicles with low-alloy steel.

Although the composition of heavy steel in a U.S. vehicle has been cut by a third since the early 1970s, replaced with cheaper metals and plastics, low-alloy steel and aluminum still make up more than half the material used thanks to its cost-effectiveness, highly formable nature, sustainability, and durability.

In reaction to the tariff-related news, shares of General Motors (NYSE:GM) are down 4.4%, Ford (F) down 4.5%, and Stellantis (STLA) down 3.4%. By comparison, shares of Volkswagen (OTCPK:VWAGY) are 2% lower, Toyota (TM) -1%, and Honda (HMC) down 1.7%.