What impact will US steel and aluminium import tariffs have on UK construction?

As the UK government prepares to make its case against the reimposition of import tariffs on UK steel and aluminium to the Trump administration, BCIS Chief Economist Dr David Crosthwaite examines the recent history of steel trade relations between the two countries and the potential implications for the construction industry.

In March 2018, during Trump’s first term, he invoked Section 232 of the Trade Expansion Act of 1962, imposing tariffs of 25% on steel and 10% on aluminium imports while citing national security concerns. Trump argued that the decline of US steel and aluminium industries posed a risk to American defence and infrastructure sectors.

Canada and Mexico were initially exempted, pending renegotiation at the time of the North American Free Trade Agreement, but their exemptions were eventually revoked in 2019. Several other countries secured quota-based exemptions.

The UK, however, was not granted an exemption, despite its ‘special relationship’ with the US and lobbying efforts from then-International Trade Secretary Liam Fox. In response, the EU (with the UK still within it) imposed retaliatory tariffs on US goods, targeting products like bourbon whiskey, motorbikes and orange juice.

Industry advocacy and government intervention continued and in March 2022 the UK secured a tariff-rate quota system, allowing 500,000 metric tonnes of UK steel to enter the US annually without tariffs. In the intervening years, however, the tariffs had led to a marked decrease in UK steel exports to the US and significant financial losses for the industry.

Given that Trump frequently discussed the reimposition of tariffs on steel and aluminium imports on the campaign trail in 2024 – citing the need to protect American industries and address trade imbalances, particularly with countries like China – the UK steel industry could perhaps have been shocked but certainly not surprised when this was announced as official policy just weeks into his second term. If nothing changes, the UK is due to be subject to the tariffs from March.

But global excess capacity is not just a concern for the US. UK Steel – the trade association for the industry – describes capacity expansions in southeast Asia and the Middle East continuing at an ‘alarming rate’, with manufacturing largely state-funded and often not corresponding to domestic demand trends.

It says global excess capacity was an estimated 543 million metric tonnes in 2023 and is forecast to reach 630 million metric tonnes by 2026, equivalent to more than 100 times UK production.

And it says steel demand is weakening in key markets, particularly China, translating into rising oversupply, which is dampening steel prices and spilling over into other markets.

In response to the most recent tariff news, UK steel said: ‘So far this year alone, steel imports into the UK have increased by 17% year-on-year amid a weak demand environment. The import share in 2024 has jumped to 70%, from 60% in 2023 and 55% in 2022.

‘The sharpest import increases have come from non-EU sources, mainly India, Vietnam, China, South Korea, Turkey and Algeria. Importantly, these are also countries that have seen significant increases in imports from China or are within China’s top 10 exporting destinations.’

And crucially for decarbonisation efforts, UK Steel adds: ‘Over two-thirds of steelmaking capacity is in countries that have Net Zero targets later than 2060 or none at all.’

With the UK targeted by Trump regardless, UK Steel’s Director General declared that Trump had ‘taken a sledgehammer to free trade, with huge ramifications for the steel sector in the UK and across the world.’

The most recent data (2023) shows that UK steel exports to the US were worth approximately £400 million, making the US the UK’s second-largest export market for steel after the EU.

Meanwhile, trade minister Douglas Alexander has said the government ‘stands ready’ to find solutions that work for both countries. Whether or not Trump and his team can be persuaded to give the UK another exemption remains to be seen, adding to the air of uncertainty already around our beleaguered economy.

Potential impact on UK construction if tariffs are implemented

A 25% tariff on steel imports would undoubtedly reduce exports to the US, potentially increasing domestic supply. This could, in the short-term, lead to price decreases unless UK producers can find alternative markets to absorb the excess.

At the same time, the UK has seen a significant increase in steel imports from countries like China, India and Vietnam, and this influx – with other countries affected by the tariffs too – may force domestic producers to lower prices to remain competitive. While buyers, such as those in the construction industry, would benefit from lower prices in the short-term, this situation is only sustainable if UK producers can withstand the intensified competition.

In periods of weak global demand, UK producers may be compelled to accept lower prices in both domestic and international markets to maintain sales volumes. To mitigate losses from decreased prices and sales, UK producers may reduce production, leading to a diminished domestic supply over time.

This contraction could have broader economic implications, including steel job losses and decreased industrial output, potentially affecting demand for new projects and investor confidence. A decline in domestic production could make the UK more reliant on imported steel, thereby losing some control over pricing and exposing the market to external supply fluctuations.

Dependence on imports makes the UK susceptible to global supply chain disruptions, such as trade restrictions or geopolitical tensions, which can lead to sudden price increases. For instance, when China reduced steel exports in 2021, global prices surged.

Ultimately, a reduction in the number of domestic steel producers diminishes market competition, which can result in higher prices over the long term.

Trump’s steel and aluminium tariffs: should we be worried?

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