President Donald Trump’s “national energy emergency” and pledge to expand infrastructure to ease the burden on American consumers is on a collision course with another Day 1 dictum: tariffs.
Trump is set to announce 25 percent levies on goods from Canada and Mexico as soon as Saturday, and perhaps additional tariffs after a sweeping review of U.S. trade policies. Both countries are the top suppliers of steel and aluminum needed for energy infrastructure such as pipelines and electric transformers, and any levies from the U.S. would raise costs on those projects.
Ned Hill, a professor emeritus at Ohio State University who has studied the impact of steel costs on manufacturers, said higher costs for raw materials are passed through to manufacturers and ultimately inflate costs for an array of goods and services, including electricity and natural gas. Action by the U.S. to protect domestic manufacturing could also lead to retaliatory tariffs by trading counterparts, furthering the economic damage.
Tariffs would raise prices not only for imported steel, but also provide headroom for domestic steel producers to raise their prices, Hill said. That would raise costs to a variety of downstream industries such as auto, housing defense and energy. In the end, the policy would yield few winners and many losers, he said.
“In the end, consumers take it in the shorts,” Hill said in an interview. “There’s no way to avoid it.”
The president reiterated his intent to impose tariffs Monday in a speech to GOP lawmakers from the Trump National Doral hotel and golf club in Miami, referencing actions more than a century ago by then-Senator William McKinley, whom he called the “big tariff sheriff.”
Trump has said tariffs aim to stop the flow of migrants and fentanyl across the border. The other goal: to benefit U.S. producers by taxing imports.
“I’ll also be placing tariffs on steel, aluminum and copper,” he said this week. “We have to bring production back to our country.”
The exact magnitude of the impact of any new tariff on imported steel, aluminum or other commodities as part of an already complex system of existing tariffs and exclusions is a guessing game. So is visibility into how and how soon higher raw materials prices would trickle through the supply chain to U.S. households and businesses.
Analysts at investment bank Citi have forecast that Trump’s proposed tariffs would likely result in steel price increases of $100 to $150 a short ton.
What is clear is that cost increases for steel and aluminum can have outsize impacts on energy infrastructure projects such as pipelines and transmission lines and towers.
The utility industry said it’s keenly aware of the impacts of rising raw materials costs and working to ensure it can affordably build needed projects.
“Tariffs and certain trade policies could significantly impact the development of energy infrastructure projects, and we look forward to working with the new administration to discuss those impacts,” said Brian Reil, a spokesperson for the Edison Electric Institute, the trade association for investor-owned electric utilities.
How costs add up
A recent example involving a Midwest transmission project shows just how vulnerable energy infrastructure is to steel and aluminum prices.
The Cardinal-Hickory Creek transmission line from Wisconsin to Iowa, a project just fully energized last year after lengthy legal and permitting battles, used 32 million pounds of steel and saw its total price tag balloon to almost $700 million from an original estimate of $492 million in part because of higher materials prices, according to a regulatory filing by project developers ATC and ITC.
Developers said weighted-average costs for aluminum and steel more than doubled compared with estimates they provided state regulators when the project was approved in 2018, the same year Trump initially imposed steel and aluminum tariffs as part of his first-term agenda.
The high-voltage power line is 101 miles long. There are thousands of miles of power lines in development across the country to enable new power generation in response to demand projections and bolster the grid to withstand extreme weather.
The numbers can get dizzying when multiplying commodity price increases across the spectrum of new energy infrastructure that is required to replace aging equipment, to accommodate demand growth from data centers and new manufacturing plants and to improve grid resilience.
Trump roiled commodity markets seven years ago with the initial round of tariffs on goods such as washing machines, solar panels and steel, as well as a variety of consumer goods from China. Former President Joe Biden maintained most of them, with some exclusions for steel, aluminum and solar panels.
The Tax Foundation said the government collected significantly more in customs duties under Biden than during Trump’s first term. But the trade policy has done little to stem the flow of foreign-made steel — the U.S. imported more than 20 billion tons last year, according to government data — or protect domestic producers.
Take the saga of U.S. Steel, the struggling giant formed more than a century ago by business titans J.P. Morgan, Andrew Carnegie and Charles Schwab. The Pittsburgh-based company agreed to a buyout by Nippon Steel, but the $14 billion deal was blocked by Biden during his final weeks in office.
Economists said Trump’s goal with tariffs is both retaliatory (Mexico and Canada are allowing undocumented migrants and fentanyl to flow across the U.S. border, he said) and protectionist. He’s hoping to benefit U.S. manufacturing.
The president has indicated he may go further with levies on most imports to the U.S. following a sweeping review of trade policy due to be completed by April 1.
Economic research, however, says tariffs — basically taxes paid for not by foreign producers but by U.S. companies that import goods from other countries — do more to kill jobs than protect them.
Hill, the Ohio State professor, said once tariffs are in place they tend to be sticky.
“When an industry hides behind a tariff wall, what happens is it becomes politically very difficult to get them out from underneath that protection because they spend very heavily on political investments to keep that profit center,” he said.
Often, levies work as blunt instruments that can have harmful and long-lasting side effects, including the loss of domestic jobs at companies forced to pay higher prices for materials, such as steel.
“There’s this idea that by insulating industries from cheaper foreign competition, it will make U.S. producers more profitable,” Lydia Cox, an assistant professor at the University of Wisconsin, Madison, said earlier this month during a webinar with journalists. But “by trying to protect certain industries you can actually make other industries more vulnerable.”
Cox co-authored a paper on the effects of steel tariffs levied by former President George W. Bush more than two decades ago and more recently looked at the impacts of steel and aluminum tariffs imposed during Trump’s first term. She found they cost the U.S. economy about 75,000 manufacturing jobs.
Trade associations representing industries dependent on steel and aluminum objected to Trump’s tariffs during his first term. Among them were the American Petroleum Institute and the National Electrical Manufacturers Association (NEMA), the trade association for electrical equipment makers.
A spokesperson for API, which lauded Trump’s executive order declaring an energy emergency, referred to a memo sent to the Office of the U.S. Trade Representative in December that recommended exempting oil, gas and “critical supply chain inputs” from additional tariffs.
In testimony to Congress in 2018, Aaron Padilla, API senior adviser on international policy at the time, spelled out how higher prices on imported goods, in this case from China, would ripple through the U.S. economy, costing jobs and harming consumers.
NEMA, meanwhile, said it’s taking a wait-and-see approach to Trump’s trade policy and said it’s too soon to conclude any new tariffs would raise energy costs for manufacturers and consumers.
“There’s some hope that some of the other actions would also provide access to more domestically sourced raw materials, an increase in domestic steel manufacturing, an increase in critical minerals and mining and production and processing,” said Spencer Pederson, senior vice president of public affairs at NEMA. “I think there’s a balance. We’re just not quite sure what we’re going to get.”