Blog Post

AEIdeas

I wrote a few days ago on CD about how Trump’s steel tariffs are backfiring even for the US steelmakers who were supposed to be the main beneficiaries of tariffs since the whole point of Trump’s protectionism was to artificially prop up high-cost, inefficient US steelmakers by making foreign competition more expensive and allowing domestic companies like Nucor to artificially raise their prices to levels where they could earn abnormally high profits and above-average returns.

And yet as the chart above shows, Nucor stock has dropped by 16.5% over the last three months of protectionism, which has eroded the company’s market value by $3.5 billion. Likewise, the shares of US steelmaker AK Steel Holding Corporation have fallen by nearly 29% since August, reducing the company’s market value by $800 million. At the same time, US aluminum producers like Century Aluminum Company, who despite being protected against foreign competition by Trump’s tariffs on aluminum, are facing challenges and falling stock prices. Over the last three months, Century’s shares have fallen in value by more than 40%, reducing the company’s market cap by nearly $1 billion since early August. In contrast to the double-digit drops in share prices of Nucor, AK Steel and Century, the overall stock market measured by the Dow Jones Industrial Average index has dropped by only 2.4% over the last three months (see chart above).

Bloomberg recently reported on the financial struggles of some of the steel and aluminum companies that were supposed to benefit from protection from more efficient foreign rivals in the article “Trump’s Tariff Beneficiaries Still Have a Problem: Fundamentals,” here’s a slice:

No matter how many barriers Donald Trump erects to protect the U.S. steel and aluminum industries, there’s one thing the president won’t quickly change: global market fundamentals. Century Aluminum Co. headed for the biggest drop in seven months and AK Steel Holding Corp. fell to the lowest since May 2016 after each of the U.S.-based companies reported less-than-stellar earnings — despite being direct beneficiaries of Trump’s steel and aluminum tariffs. The companies have also been among the most vocal supporters of the measures. Century plunged 14.9% to $8.065 at 2:47 p.m. Friday in New York, while AK Steel dropped 10% to $3.80 per share. “The problem I think you have on the producer side in the U.S. is that the industry is still as inefficient as it has been,” Michael Widmer, the head of metal markets research at Bank of America Merrill Lynch, said in an interview.

MP: As I mentioned before, if this is Trump’s idea of “winning” his trade war, when both domestic steelmakers and aluminum producers like Nucor, AK Steel and Century Aluminum are suffering from double-digit declines in share price and the loss of hundreds of millions of dollars in market value over just the last three months when the steel and aluminum tariffs have been in full effect, and domestic steel- and aluminum-using firms are suffering from the steel tariffs with falling share prices over the last three months like Ford (-11%), GM (-13.3%), Caterpillar (-18%) and Anheuser-Busch (-27%), what exactly would “losing” a trade war look like?