A 17 percent slide in the stock of U.S. steelmakers over the past month illustrates, once again, that appearances in financial markets can be deceiving.
The selloff in companies tracked by Credit Suisse, from AK Steel to Nucor and U.S. Steel, actually represents a buying opportunity since the firms and their competitors are likely to benefit significantly from even the watered-down version of metals tariffs announced by President Trump on March 1, says Curt Woodworth, an analyst for the Zurich-based lender.
While steel prices won’t spike as much as they might have under the blanket 25 percent tariffs that Trump first proposed, subsequent exemptions for trading partners from the European Union to Canada and Mexico signal that the U.S. is “likely to avoid trade-war fallout and pressure to U.S. manufacturing,” Woodworth said in a report on Tuesday. Further, he said, “Trump’s ‘shot across the bow’ appears to be yielding better bilateral trade outcomes, especially with respect to U.S. automotive exports, which is a win for the U.S. steel sector.”
The metals duties, which included a 10 percent tariff on aluminum, are part of Trump’s strategy to reduce a U.S. trade deficit that reached $796 billion last year, excluding services. The White House has argued that doing so will benefit American manufacturers and return jobs to the country, though financial markets have been rattled by concern that the metals duties and tariffs announced later on Chinese imports may spark a trade war.
The S&P 500 is still 1.5 percent below its pre-tariff trading levels, though it has pared losses as exemptions to the metals duties and talks with China boosted optimism that a trade conflict — particularly one between the world’s two largest economies — might be averted.
The metals levies were imposed under Section 232 of the Trade Expansion Act of 1962, while the China tariffs — of 25 percent on as much as $60 billion of imports — are allowed under Section 301 of the Trade Act of 1974. Though Trump has broad powers under both laws, Section 232 provides for tariffs to protect national security, and Section 301 is designed to address unfair trade practices.
“Perhaps Trump’s end game all along was to use highly nationalistic feelings around steel to foster his trade agenda,” Woodworth wrote. “Recent outcomes with South Korea and reports from Chinese discussions both suggest more export potential for U.S. automotive, which we view as a strong positive for steel.”
Investor concerns about a trade war “should start to fade” now, he added.
U.S. Steel fell 1 percent Tuesday to $34.43, widening its decline since the tariffs were announced to 21 percent. AK Steel has dropped 12 percent in the same period, while Steel Dynamics and Nucor are down 5 percent and 6 percent, respectively.
