Photo: JULIO CESAR AGUILAR/AFP via Getty Images
On February 10, President Trump announced plans to impose a 25 percent tariff on all steel and aluminum imports, set to take effect on March 12. Sound familiar? If these tariffs actually go into place (cue Lucy with the football gif), they would be a reboot—and an expansion—of the policies Trump first implemented in 2018.
Over the past seven years, those 2018 tariffs have been dialed back. Trump initially granted exemptions to allies like Mexico and Canada, while Biden later brokered deals with the European Union, the United Kingdom, and Japan in 2021. And yet, here we are again, at the doorstep of imposing steep tariffs on partners and competitors alike. This raises two key questions: Why are we doing this? And is there a better way?
We argue that while these proposed unilateral tariffs on steel and aluminum seek to address a real challenge—nonmarket policies by the People’s Republic of China (PRC) and others that distort global markets, artificially increasing the supply of pollution-intensive metals—they will not solve the underlying problem. In addition, these tariffs would impose significant costs on domestic consumers, producers, and exporters and strain relations with partners, whose help we need to tackle this challenge. Instead, any sustainable solution must include U.S. partners and allies working together to provide the PRC with the incentive to reform its industrial policy strategy.
The economic argument for tariffs on steel and aluminum can most charitably be viewed as a response to an enduring challenge: China’s state-driven overproduction of metals. In recent years, this has been termed “overcapacity,” referring to government-backed overinvestment that ignores actual market demand. While there is no formal definition of overcapacity, the numbers speak for themselves—China produced 53.9 percent of the world’s crude steel in 2023, with a manufacturing capacity utilization rate of 73.8 percent (compared to the OECD, or the Organization for Economic Cooperation and Development, average of around 80 percent). Additionally, OECD estimates suggest that China’s steel subsidies are more than five times higher than other non-OECD economies and more than 10 times higher than OECD countries. These subsidies allow low-productivity producers to operate at a loss, many of whom would collapse without government support. The global ramifications of these policies have only intensified because of China’s economic slowdown. As domestic demand for steel drops, China is flooding global markets with cheap, heavily subsidized exports—undercutting producers in the United States, Europe, and Asia.
Why, then, are we not just imposing tariffs on the PRC? The problem is that Chinese steel makes up less than 2 percent of U.S. imports (due to existing trade barriers), so such tariffs would have little effect. The presence of Chinese steel in other markets drags down global prices, squeezing U.S. producers despite negligible imports from China itself.
If all of this sounds like déjà vu, that’s because it is. Every president since George W. Bush—Obama, Trump, Biden, and now Trump again—has tried to tackle the Chinese overcapacity problem, and yet it persists. Even when the United States imposes significant barriers to direct Chinese imports, we still feel the ripple effects of China’s industrial policy on global market prices. So, because we have failed to address the underlying problem, we find ourselves on the brink of imposing sweeping and universal tariffs on steel and aluminum.
The challenge of Chinese steel dumping is real, but slapping unilateral tariffs on imports is like using a sledgehammer when we need a scalpel. These tariffs don’t just punish China—they act as a tax on U.S. industries that rely on steel and aluminum, driving up costs and fueling inflation. Projections suggest steel prices will rise 8.2 percent and aluminum 5.7 percent—a direct hit to industries like auto manufacturing, construction, and industrial tools, all of which rely on these metals.
Let’s put this in perspective: U.S. steelmakers support about 80,000 jobs, while steel-using industries employ 12 million—an 80:1 ratio. Any job gains in steel production will likely be overshadowed by much larger losses in industries that rely on affordable steel. The 2018 tariffs, for instance, were estimated to destroy 75,000 jobs in steel-dependent sectors. The impact won’t just be felt in private industry—major infrastructure initiatives like the Bipartisan Infrastructure Law, Inflation Reduction Act, and CHIPS Act will all see higher costs. Even cutting-edge private projects, like the proposed $500 billion Stargate AI data center initiative, will become more expensive, slowing investment in the industries of the future.
And then there’s the backlash. Tariffs don’t happen in a vacuum—they provoke retaliation. After the 2018 tariffs hit €6.4 billion worth of EU steel and aluminum exports, Brussels fired back with tariffs on €2.8 billion worth of U.S. goods, hitting everything from agricultural products to whiskey and motorcycles. This time, Canada and Mexico—the United States’ two biggest trading partners—haven’t been exempted, making retaliatory tariffs even more likely and potentially pushing partners into closer economic ties with China. Canada, the largest U.S. supplier of both steel and aluminum, will take a direct economic hit, damaging cross-border trade. Instead of focusing on the real issue—China’s market-distorting policies—the United States risks entangling itself in tariff disputes with its closest allies. We should have a debate about how to best address PRC nonmarket polices rather than the relative impact of tariffs on Kentucky whisky and French brandy.
If the United States wants to meaningfully address China’s steel and aluminum overcapacity, it can’t go it alone. A “Fortress America” approach only isolates the United States while the underlying problem goes unaddressed. Instead, we need a coordinated strategy with allies to counter China’s unfair subsidies and dumping practices.
One attempt at multilateral action, the Global Arrangement on Sustainable Steel and Aluminum (GASSA), was the subject of negotiation between the United States and the European Union starting in 2021 (an effort to unwind the 2018 version of these same tariffs). The idea? To create a tariff structure that increases the cost of carbon-intensive and highly subsidized steel and aluminum from nonmarket economies like China, thereby addressing nonmarket policies while also meeting climate goals. But progress has stalled, as the European Union favors a carbon border adjustment mechanism, while the United States resisted adopting such a system in favor of its own tariff policy.
Another major challenge to GASSA? World Trade Organization (WTO) rules, which create legal obstacles to targeting China’s overcapacity and pollution-intensive production through trade restrictions. WTO principles prohibit discriminatory trade measures against specific member states and make country-specific tariffs based on carbon intensity very difficult. Additionally, WTO subsidy rules are narrowly defined, making it difficult to justify tariffs on Chinese steel based solely on Beijing’s state-backed industrial policies. Since many of China’s subsidies—such as subsidized land sales—can be difficult to document and aren’t always categorized as direct financial contributions, they can fall outside WTO enforcement mechanisms. That leaves the United States and its allies in a bind: they must find a way to craft policies that both curb Chinese dumping and highly polluting production that do not run afoul of existing international obligations.
The upcoming G7 summit, with Canada at the helm, offers a prime opportunity. Canada has made countering nonmarket competition and “unfair competition from the increased use of non-market policies and practices” a top priority. The Trump administration should use Canada’s G7 presidency and other international organizations to begin laying the groundwork for collective action to counter China. The March 12 delay in implementing the tariffs gives the Trump administration a brief window to negotiate with allies for a coordinated response. While there is little chance of coming up with a final solution in one month, the United States and its like-minded partners should agree to begin the process of addressing this challenge.
The bottom line? Unilateral tariffs will raise prices, cost American jobs, and strain alliances. The real solution lies in working with partners to shut down avenues for China’s dumping and create a level playing field in global trade. Between now and March 12, we should start the conversation that can eventually lead to a collective solution.
Philip Luck is the director of the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Evan Brown is the program coordinator and research assistant for the Economics Program and Scholl Chair in International Business at CSIS.
