Tariffs in Context – Our Forecasting Approach

The US government’s recent decision to double tariffs on steel and aluminum imports – from 25% to 50% – has understandably raised questions among clients about inflation, supply chain disruption, and the broader economic outlook. While we recognize the significance of such policy adjustments for specific markets, we want to be clear: This update represents a change in the level of an existing tariff regime, not a structural change to the global economy.

As such, we are not altering our macroeconomic or industry-level forecasts in response to this development.

How We Forecast in a Tariff Environment

Trade policy shifts, like tariffs, are one of many inputs we evaluate within a broader, data-driven forecasting framework. While politically and emotionally charged, tariffs do not automatically result in large-scale macroeconomic disruption. Instead, their effects tend to be uneven, time-delayed, and often offset by underlying business cycle trends or adaptive responses by firms and consumers.

When evaluating the economic significance of a new or adjusted tariff, we ask several core questions:

• What is the magnitude of exposure?
  
  The US imports a meaningful share of its steel and aluminum needs, but not the majority. In aggregate, we have some domestic capacity – particularly for steel – to increase production if pricing justifies it. That said, ramping up production takes time and capital, and it comes with cost implications. Thus, we expect pricing volatility more than outright shortages. Note that specialty grades of steel are more likely to face shortages and/or price increases.
  
  
• Can domestic production expand to fill the gap?
  
  In some sectors, there is latent capacity or the ability to ramp up output domestically. In others, the barriers – capital investment, regulatory friction, labor shortages – are significant. For steel, the US does have capacity to increase production, but not without trade-offs in cost, timeline, and potential substitution effects for downstream markets.
  
  
• How adaptable are supply chains?
  
  Post-COVID, many firms have already diversified suppliers or added redundancy into their input-sourcing strategies. While a 50% tariff is nontrivial, most steel-consuming industries were already looking for ways to minimize tariff impacts. Businesses with flexible sourcing may face cost increases but not product availability disruption.

• What happened last time?
  
  Historical precedent matters. When tariffs were imposed during 2018–2019, we saw a short-term price surge in steel and aluminum, downstream impacts on heavy industry, and some reshuffling of sourcing; however, we did not see a recession, nor a collapse in manufacturing or construction activity. That historical data informs our expectations today. One key difference from the 2018 to 2019 period is the point in the cycle at which tariffs were enacted. In our present situation, the industrial economy is picking up steam after a difficult 2024. This increases the likelihood that we see steel and aluminum prices move higher rather than lower, as was the case following the initial surge post-tariff announcement in 2018.

[ Stay informed with the latest tariff updates with insights from ITR Economics! ]

Why Our Macroeconomic Forecast Is for Mild Growth

Our outlook still calls for mild economic growth through 2025 and 2026, with persistent, but not runaway, inflation. Tariffs may shift the composition of growth (e.g., from volume to pricing), but they do not inherently reverse it. Our analysis suggests that the US economy is positioned to avoid recession, and we do not see this particular development to be significant enough to tip the broader global economy into contraction.

We are currently evaluating our steel and aluminum price forecasts in light of the new tariff rate. Our preliminary analysis suggests that the net impact on our pricing outlooks is likely to be minimal in aggregate. This is due to a partial offset from demand destruction, as higher prices lead some buyers to delay or reduce orders. We will continue to monitor these commodity market conditions and make changes to our outlooks as necessary. We will also continue to monitor the effects of the new tariff level on other key indicators, such as Industrial Production, construction activity, and wholesale trade.

For Business Leaders

Clients operating in steel-intensive industries – such as auto manufacturing, appliance production, and commercial construction – should prepare for some volatility in pricing and inventory availability. If you operate in a steel- or aluminum-intensive industry, here are some prudent next steps:

• Reassess your exposure to tariff-affected inputs and review supplier diversification.
• Monitor lead times and inventory levels.
• Look for opportunities to gain market share if your cost structure is less exposed to imports.
• Communicate proactively with customers about cost trends and pricing strategies.
• Reach out to us for help assessing competitive dynamics in this new pricing environment.

We encourage you to contact our team if you would like to understand the implications for your market position, pricing strategy, or input sourcing. We are actively updating our tariff impact assessments for industries directly exposed to international steel flows.

The Bottom Line

Our approach to forecasting keeps true to our methodology: data-driven, context-aware, and resilient to policy noise. The increase in global steel and aluminum tariffs from 25% to 50% is notable – but is unlikely to disrupt the broader US economic trajectory. We will continue to update you as new developments arise, but our outlook does not change based on this tariff shift. We continue to expect modest growth in the US and globally in 2025, albeit with persistent inflationary pressures. Our team will monitor subsequent trade developments and keep you informed as the situation evolves.