The Peninsula

Steel Tariffs Undercut US Strategic Competition in EVs and AI Infrastructure

On Monday evening, President Donald Trump unveiled 25 percent tariffs on steel and aluminum imports to the United States, eliminating the exemptions that had allowed South Korea to export steel under a quota. Representing an opening salvo of second-term trade actions impacting Korea and other countries, the tariffs will deeply affect the United States’ ability to compete in steel-intensive industries.

Trump had initially implemented a 25 percent tariff on global steel and aluminum imports in 2018, using Section 232 of the Trade Expansion Act of 1962, which allows the president to adjust imports through tariffs or quotas if they are deemed to threaten national security.

Following negotiations surrounding the alteration of the Korea-US Free Trade Agreement (KORUS FTA), which occurred almost in tandem with the implementation of Section 232, Korea became one of several countries granted steel quotas in place of the tariff, limiting their exports to 70 percent of the average annual volume from 2015 to 2017. The fact sheet on the new steel tariff proclamation claimed that the tariff exemptions created a loophole that was exploited by China and other countries “with excess steel and aluminum capacity,” echoing the economic security sentiments of the original 232 imposition.

The president using national security as the auspices for implementing tariffs on steel may create national security problems of its own. While tariffs on steel coming into the United States may protect some legacy foundries from international market pressure, the stress it could place on specialty steel supply chains would undermine US strategic competition in key areas like electric car manufacturing and power grid infrastructure used for AI data center deployment.

The United States has an ongoing shortage of electrical steel, a critical product used in areas like engines for EVs and transformers used in energy transmission networks. Globally, there are only a handful of companies capable of producing this type of steel, which requires precision equipment and purity standards beyond what can be produced in the manufacturing process.

Korea and other steel-producing countries play an artisan role in the production of these and other types of steel, and Korean steel giants have intensified efforts to hone down on the technological processes needed for their manufacture. Without major commitments by Washington to reshore that type of industry through targeted investment, the re-imposition of these tariffs will make it more difficult for the United States to source the types of high-performance materials needed to achieve dominance in areas relevant to US national security and global strategic competition—such as the burgeoning EV auto market or energy infrastructure needed to construct AI compute hubs—all while making it costlier to purchase and produce in areas ranging across construction, cars, and ships. While this will likely serve as a base for further trade negotiations, used as an impetus to encourage production in the United States, it comes at the cost of opening a window of opportunity for foreign competitors in strategic industries—an ultimate benefit to US rivals.

Tom Ramage is an Economic Policy Analyst at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Shutterstock.

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