By: Marta Bengoa
The new steel and aluminum tariffs announced by U.S. president Donald Trump are set to take effect in mid-March. The reverberations will be felt globally, from São Paulo's industrial heartland to Malaysia's emerging manufacturing hubs. For Brazil, Latin America's largest steel producer, the stakes are particularly high. The country's steel industry, which employs more than 100,000 workers directly, has been grappling with overcapacity and sluggish domestic demand. A 25% tariff threatens to compress margins further in an industry operating at just 63% of capacity.
For India, where ambitious infrastructure plans underpin Prime Minister Narendra Modi's economic vision, the calculus is particularly complex. The country's steel industry, the world's second largest, faces a painful recalibration that could delay crucial modernization efforts. Japan's response has been characteristically measured but firm. The world's third-largest economy has long advocated for rules-based international trade, and its steel industry remains a crucial supplier of high-grade materials to global automotive and electronics manufacturers. Industry insiders in Tokyo suggest that any significant disruption could accelerate Japanese manufacturers' ongoing diversification of production bases across southeast Asia, a trend that began with the first wave of U.S. metal tariffs in 2018.
The broader economic implications are sobering. These new set of steel and aluminum tariffs could shave 0.3-0.5 percentage points off global GDP growth over the next two years. More concerning are the second-order effects: reduced business confidence, delayed investment decisions, and the potential for tit-for-tat escalation in other sectors. Together with the litany of efforts to get exceptions that have already commenced.
More challenging still is the prospect of reciprocal tariffs, a sweeping measure whose implementation remains shrouded in uncertainty. Although India's steel exports to the United States are small (about $450 million), reciprocal tariffs would be significant if they go into effect. On a trade-weighted basis, India's average tariff rate is about 12% compared to just 2.2% for the United States. Key questions persist about whether these will be based on Most Favoured Nation (MFN) rates or bound tariffs, and how they might interact with existing free trade agreements. The administrative and legislative burden of a universal application could trigger a global supply shock. India, Malaysia, and Brazil stand to lose the most from such reciprocal measures, given their relatively high tariff rates on U.S. imports.
Perhaps most worrying is the signal these measures send about the future of multilateral trade governance. The World Trade Organization's dispute resolution mechanism, already under strain, faces another stress test. The risk extends beyond economic impacts to the institutional erosion of the global trade system itself.
For businesses caught in the crossfire, the immediate challenge is adapting to a more uncertain trading environment. Supply chain executives across Asia report accelerated efforts to localize production and diversify supplier bases. The era of frictionless trade has ended. For the industrial heartlands of Brazil, India, Malaysia, and Japan, this could shape economic trajectories for years to come.
Marta Bengoa is a Non-Resident Fellow at ORF America.