How Donald Trump’s Tariffs Are Disrupting the British Metal Industry | Money News

As midnight approached on 12 March, Liam Bates was anxiously refreshing his browser.

In the weeks leading up, Marcegaglia, the stainless steel firm he managed, had hurried to melt and ship as much metal as possible from its operations in Sheffield to the east coast of America in anticipation of impending tariffs.

Stainless Steel

Interconnected Industrial Efforts Between the UK and US

Among the various types of steel, stainless steel—an alloy made of iron, chrome, nickel, molybdenum, and carbon—is critically important. Unlike many iron alloys that rust in the presence of oxygen, stainless steel features a protective passive film that combats corrosion and can even self-repair. This quality makes it indispensable for everyday items like sinks and cutlery, and even more crucial in surgical tools, heavy machinery, and the vital pipes and ducts that keep society running smoothly.

The method for producing stainless steel in bulk originated here in Sheffield through the work of Harry Brearley. Though the laboratory he once operated has long since ceased to exist, the furnace at Marcegaglia, located in an industrial park just outside the city, carries on that legacy. Formerly owned by British Steel, the nationalized entity responsible for the majority of Britain’s steel production prior to privatization, this furnace signifies the enduring connection to steelmaking history.

Since the invention of stainless steel, Britain has melted, cast, and exported vast amounts to America. Although the U.S. possesses a significant stainless steel industry, the industries of both nations have been intricately connected since the era of Henry Ford, as reflected in Marcegaglia’s operations.

The company processes scrap steel in its electric arc furnace located in Sheffield—an immense cauldron, where electrodes produce a dazzling spectacle of lightning, consuming as much electricity as a considerable northern city. The relevant alloy components are incorporated to create long, heavy metallic bars called billets, which are then shipped across the Atlantic to the company’s other facility for processing into market-ready bars for North America. This operation is a single economic entity, merely divided by the ocean.

However, the ocean and the inter-country divide have now turned into substantial hurdles. Previously, when Donald Trump enforced steel import tariffs in 2018, intermediate products like the billets made by Marcegaglia were exempt from duties. Unfortunately, the initial ruling this time contained no such allowances. Consequently, any steel arriving at American ports post 12.01 am Eastern Standard Time on 12 March, including Marcegaglia’s semi-finished stainless billets, faced heavy 25% tariffs.

A Race Against the Clock

This urgency compelled Liam Bates to push for as much steel to enter the U.S. before that critical deadline. Yet, as he refreshed his browser, he noticed two lingering shipments stuck in the Atlantic. The two vessels, the Eva Marie and the Atlantic Star, were carrying around $12 million worth of steel, with an anticipated arrival in the U.S. on 10 or 11 March. Their timely arrival would eliminate the burden of those 25% tariffs, but stormy weather loomed over the North Atlantic. Would it disrupt shipping schedules?

Late arrivals would wipe out any profit margins the company hoped to achieve, and since those bars were meant for Marcegaglia’s own facility, the company would bear the costs, as tariffs are legally the responsibility of the importer. Bates found himself trapped in an unforeseen intersection of weather and politics, with serious commercial ramifications.

Among the numerous metal commodities the UK ships to the U.S., stainless steel is the predominant category, with the vast majority emanating from Marcegaglia’s operations. Bates’s situation, along with the firms he supplies in the U.S., effectively illustrates the challenges arising from tariff-based economic policy.

Increased Costs for Americans

The primary rationale behind the White House’s measures is that raising the import prices of metals will incentivize domestic producers to ramp up new production, aiding the U.S. in its reindustrialization—this is the claim made by Donald Trump. In the long run, this theory might hold merit. Metal producers are already securing funding and pledging to restart legacy smelters. With overseas competitors facing a 25% price hike, this represents a significant opportunity.

The catch is that constructing industrial production capacity requires time. Marcegaglia itself is planning to upgrade its aging furnace, but the planning phase has taken years, with construction projected to extend over several months, if not years. In short, even under optimal conditions, America is unlikely to replace imported steel with domestic output before Donald Trump’s presidential term concludes.

In the interim, American consumers will experience rising costs across the board. Steel, despite often being overlooked or dismissed, is arguably the most crucial metallic substance globally. If something isn’t composed of steel, it’s probably produced using machines made of steel. Therefore, a 25% increase in steel prices will create a wide-reaching economic ripple effect throughout U.S. supply chains.

The UK Inundated by Inexpensive Imported Steel

This economic wave is already affecting the UK as well. With a significant portion of steel unable to enter the U.S. at competitive prices, exporters are reallocating shipments elsewhere. Consequently, countries like the UK are experiencing an influx of cheap imported steel—beneficial for consumers in the short term but detrimental to the remnants of Britain’s domestic industry.

As the deadline loomed closer and Bates continuously monitored tracking of the vessels, disaster struck. The intensifying Atlantic storms caused the Eva Marie and Atlantic Star to slow to nearly a standstill. When midnight arrived and tariffs were enacted, the two ships remained many miles from the American coast. They had lost the race. Marcegaglia now faced approximately $4 million in tariffs—roughly £3 million.

The situation where a company was penalized with an arbitrary cost merely for transferring goods between its own factories exemplifies the many collateral economic damages instigated by trade barriers. This is likely just the beginning of numerous paradoxical incidents, with repercussions felt globally. After all, steel is not the only metal impacted by tariffs; the drama extends further into another essential metal—aluminium.

Aluminium

Scotland’s Hidden Industrial Giant

Here’s a thought experiment: what could be deemed the largest factory in the world?

Your mind may wander to extensive car assembly lines in Michigan, shipyards in Korea, or sprawling steelworks in China. However, a robust case can be made that the world’s largest factory is nestled within the Highlands of Scotland.

Though it may not resemble a traditional factory, encompassing instead scenic heather, lush forests, and babbling brooks flowing into tranquil lochs, the 114,000 acres of estates in Lochaber and Badenoch, Scotland’s third-largest rural estate, plays a vital role in the generation of one of the globe’s most critical substances.

The Fort William aluminium facility lies in the shadow of Ben Nevis, the United Kingdom’s tallest peak. Once, it was part of a network of smelters scattered across Scotland, establishing the country as a major aluminium producer globally.

Although plentiful in the earth’s crust, aluminium was once one of the rarest metals on earth—so rare that it eluded human eyes until the 19th century. Napoleon III even served dinner to his guests on aluminium plates to impress them, forgoing gold.

A Remarkable Metal

Why such exclusivity? Aluminium poses significant challenges for extraction—it’s even more difficult than iron to refine from its ores. Smelting iron requires heating the ore to high temperatures with the right type of charcoal or coal, but aluminium necessitates a different energy source: electricity.

It was not until the Hall-Heroult process—a method for extracting aluminium via the electrolysis of alumina (refined bauxite) was developed in 1886—that aluminium became widely available. Although little is spoken of the Hall-Heroult process nowadays, it represented a transformative breakthrough. Aluminium is a unique metal—light yet strong—which endows it with critical applications in the aerospace industry. Without aluminium, the aviation sector would look drastically different.

It’s no coincidence that the Wright Brothers’ aircraft at Kitty Hawk featured an engine crafted from aluminium. Steel would have rendered the glider excessively heavy. The history of powered flight coincided closely with the widespread availability of aluminium, and without the Hall-Heroult process, society may have unfolded quite differently.

While this revolutionary process wasn’t invented in the UK, British entrepreneurs quickly adopted it, establishing smelters across the nation. However, the critical aspect of aluminium smelting is the need for a consistent and reliable energy supply. Disrupting power to the substantial carbon electrodes in an aluminium smelter can lead to the metal solidifying within hours, effectively ruining it. This imperative underscores why these facilities are generally not operated on inconsistent power sources like wind or solar energy.

This also clarifies why historically, aluminium smelters have been regarded as pivotal industrial sites globally. During World War II, the Fort William plant supplied the majority of aluminium for Spitfire aircraft, warranting targeting by the Luftwaffe. In fact, an old German bomb is preserved as a souvenir near the turbines powering the cells located there.

Early aluminium smelters often harnessed hydroelectric power, particularly those leveraging the power from Niagara Falls near Buffalo, New York. However, the Fort William facility was innovatively distinct. Those other hydro plants relied on large dams generating energy from major rivers, such as the ones in the U.S., Canada, or the fjords of Norway. In contrast, British rivers lack sufficient strength or flow consistency for that level of reliable power.

Innovative Design

This predicament led the engineers of the Fort William plant to adopt a revolutionary strategy. They acquired immense tracts of land around Ben Nevis (including the peak itself) and constructed a network of dams to capture and store rainwater flowing from local watersheds. These dams were not designed to generate power for residential use; rather, they were meticulously engineered to funnel water through a series of tunnels stretching 16 miles through the hills and along the sides of Ben Nevis. Ultimately, this diverted water feeds five pipes running down the mountain, converging at a massive hydroelectric power station.

Although numerous aluminium smelters and hydroelectric plants exist globally, none replicate the unique features of this facility. The essential point is that without the estate and its collection of trickling streams and rain-drenched watersheds, the plant wouldn’t be able to operate efficiently; it forms part of a cohesive ecosystem.

Today, the plant is linked to the national grid, providing additional functionality: balancing. This relates back to a critical flaw in the grid; high-voltage connections are insufficient between Scotland—abundant in wind farms—and the south. On windy days, when excess power accumulates in Scotland, the plant can absorb additional electricity from the Scottish grid and effectively store its water, functioning as a temporary battery.

Competing with China

The Fort William facility confronts a significant issue: as aluminium has transitioned into a commodity metal, competing against China’s costs has become increasingly daunting. China wields overwhelming dominance over global aluminium production, benefiting from both affordable energy and substantial government subsidies—advantages not accessible in the UK. Over the years, workers at Fort William have observed the gradual closure of other plants throughout Britain. Persistent rumors circulate regarding the potential closure of their own facility.

Similar to Marcegaglia in Sheffield, the new tariffs on aluminium will further complicate life for Alvance, the segment of Liberty House—part of Indian-born Sanjeev Gupta’s enterprise—that currently owns the Fort William plant. The effect could potentially be more profound here. When Trump previously imposed aluminium tariffs in 2018, they stood at 10%. On this occasion, the tariff mirrors the steel rate at 25%, reflecting the fact that the U.S. imports significantly more aluminium than steel. Heightened costs would be feared to cripple the American aerospace and automotive sectors, both heavily reliant on aluminium. This time, however, no such concerns seem to have been manifest. The tariff has increased to 25%.

The impending implications for the Fort William plant remain uncertain. Though Alvance does not directly sell to the U.S., it sends large aluminium slabs to firms in England for processing into sheets and specialized components, some of which eventually reach the U.S. It’s possible, as defense manufacturing ramps up in the next few years, that a larger portion of this aluminium will be utilized domestically. Nevertheless, what is stopping UK manufacturers from continuing to prioritize the cheapest available metal, which typically originates from China? In any scenario, the future is poised to become increasingly challenging for the UK’s remaining aluminium facility.

While the overarching consequence of the trade war brewing across the Atlantic and Pacific is projected to leave both sides worse off—a prediction from the Organisation for Economic Co-operation and Development—there may still be select beneficiaries in the UK. For instance, transitioning from the extreme south of Britain to its far north, we encounter another metal: tungsten.

Tungsten

One of the Largest Global Resources Found in the UK

Driving through Dartmoor, the windswept national park nestled in the heart of Devon, one occasionally stumbles upon ruins of old tin mines. At Fox Tor, one observes remnants of alluvial mining; at Golden Dagger Mine, operations persisted until the 1930s, and the hollow stone chimney of the pumping house at Wheal Betsy stands testimony to its history.

In ancient times, tin—which creates bronze when combined with copper—was regarded as a “critical mineral” essential for producing sturdy tools and weaponry of the Bronze Age. For centuries, the majority of Europe’s tin supply originated from Cornwall and Devon.

While those days have faded, beneath the soil of southwest England lies one of the planet’s largest tungsten deposits.

A Critical Mineral for the 21st Century

Tungsten is considered one of the most vital minerals in the 21st century. Nearly every nation has its list of essential materials needed for their key products, but tungsten remains one of the few elements included on every list. As the hardest metal with the highest melting point, it is crucial for creating hard steel tools, weapons, armor, and semiconductor circuit electrodes. Whether in electronics or military applications, tungsten’s importance is undeniable.

Perhaps it’s no surprise that the main operational peak of this mine—rich in both tungsten and tin—occurred during the First and Second World Wars. Just as the Fort William plant supplied aluminium crucial for Spitfires, Hemerdon provided the tungsten and tin essential for the British military’s weaponry during wartime. However, its journey has been far from smooth.

After decades of dormancy, the mine was briefly revived during the Korean War. More recently, investors sought to reinstate it, developing a comprehensive processing facility and initiating mining activities. However, by 2019, the operation had fallen apart due to budget constraints, leaving behind a gaping hole, a sizeable waste dam, and a warehouse filled with processing machinery.

Much of Hemerdon’s failure stemmed from a common pitfall in mining: misjudging the type of ore expected. Their processing facilities proved inefficient than feasible. An even larger hurdle, mirroring challenges faced by others, arose from competition with Chinese suppliers.

China exerts dominance over global tungsten production, more so than in sectors like aluminium and steel. Its control over the market and prices—which fluctuate inexplicably—creates a formidable barrier for competitors.

However, fresh investments have recently flowed into Hemerdon, as stakeholders hope to avoid past mistakes and tap into the enormous tungsten reserves it holds. There are reasons to be optimistic (though cautious) this time. One significant factor is that in retaliation against Donald Trump’s latest metal tariffs, China has implemented export limitations on tungsten. The effectiveness of this move remains to be seen, given the opaque nature of the tungsten market, but if it prompts domestic buyers to seek local suppliers, it could benefit the mine significantly. The potential to produce thousands of tonnes annually could propel the UK to become the second or third major global tungsten producer, albeit still far behind China.

The Importance of Supply

A second significant change is the re-emphasis on defense. As militaries around the world bolster their arsenals, access to tungsten supplies is increasingly vital. This shift could advantage a British tungsten mine, allowing it to succeed in a manner that previous operations could not.

With the mine nearing readiness for exploitation and its new owners asserting they’ve resolved past issues, prospects are encouraging. The goal is to start extraction as soon as next year.

Nevertheless, the overarching challenges remain unaddressed. A broader, more significant problem persists within the entire industry—not just within the UK, but particularly impacting the U.S. market. How does one strategize amid the unpredictability of the political landscape, particularly regarding White House initiatives?

Imagine being a stainless steel producer or aluminium smelter in the U.S. The 25% tariffs ostensibly provide a competitive edge over foreign competitors. Thus begins the planning to establish new smelters or stainless steel melting facilities. The endeavor, however, requires substantial time investment. You must secure land, connect to high-voltage power sources, and complete necessary infrastructure. Even in the best-case scenario, allowing for two years for completion is optimistic. Meanwhile, while preparing plans, potential investors might raise a familiar concern: while today’s aluminium smelter economics may seem promising, what if the president decides to change course tomorrow? What if subsequent administrations withdraw those tariffs? All of a sudden, the calculations undergo drastic alteration.

This highlights that uncertainty regarding tariffs poses challenges not only for companies looking to export to America but also for American businesses eager to capitalize on the trade war. Moreover, it’s vital to recognize that the metal industry only marks the opening chapter of a protracted tale that could spill into all facets of American trade. These are truly unpredictable times.