Leibowitz: Tariff and policy uncertainty spell economic danger

This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at smu@crugroup.com.

A recent report by the Federal Reserve Bank in Kansas City, Mo., noted that in the past year, US manufacturing activity was basically flat in that Federal Reserve district. National figures indicate a steady decline in manufacturing employment in 2025. In short, tariffs don’t seem to be creating manufacturing jobs on a net basis. Meanwhile, consuming industries face increasing uncertainty, and new capacity growth has slowed.

With tariffs at the center of the Trump administration’s policies, this is not encouraging. The administration is continuing to predict massive growth in manufacturing output and employment under the tariff regime. That is not happening, at least not yet. And it’s hard to see how that will change any time soon.

Other available data suggest that the rosy administration predictions don’t hold much water. Tariffs affect different parts of the economy differently. Tariffs on steel imports (50% under Section 232 tariffs applying to steel and steel “derivative” products) have contributed to price increases from domestic mills, improving their bottom lines. But orders from customers are slowing down, hurting downstream industries’ profitability and job prospects.

Uncertainty stems in particular from the “reciprocal” (aka IEEPA) tariffs that President Trump imposed last April. Questions about whether they will continue to apply in the future is part of the problem. But not all of it. (Recall that IEEPA is a reference to the International Emergency Economic Powers Act, which Trump invoked it to put the “reciprocal” tariffs in place.)

We all know that the Supreme Court will issue a ruling on the reciprocal/IEEPA tariffs. No one knows what the outcome of that case will be. But a considerable body of opinion indicates they could be struck down, at least in part. Obviously, any investor thinking of building manufacturing capacity will defer action until we know the future of those tariffs. Also, the president’s constant revision of the tariff structure because of short-term economic and political needs is likely to put a damper on investment in manufacturing.

The Section 232 tariffs on steel, aluminum, and other products are more certain. However, the president can adjust them at any time. No Supreme Court decision is pending on those. But a wave of new manufacturing output, particularly in downstream industries, is not in the cards any time soon. Protectionism depends on across-the-board tariffs that will last for years. If IEEPA tariffs are struck down, it will take time for new tariffs to build an unscalable wall into the United States.

While new steelmaking capacity has been announced, massive increases in US steel production are not evident. And in the aluminum and automotive sectors (two industries also under Section 232 protection), the record on investments and employment are less than stellar. Based on 2025 data, steel production in the United States has risen to third place from fourth place in the world. But that “rise” is due more to Japan’s decline than to US increases in production. China remains the producer of more than half the world’s steel. And, as I’ve said before, US tariffs will not change that.

Domestic demand for many products has declined because of uncertainty in the market. Consumers are deferring purchases of major items such as cars and trucks because of employment uncertainty. Those concerns aren’t baseless. Many companies have laid off employees.

In the meantime, the administration is doing what it can to weaken the dollar. The exchange rate between the dollar and the euro, for example, has risen 15% in favor of the euro since the beginning of 2025. This decline in the value of the dollar has stoked inflationary pressures in the US. The expected increase in US exports from a weaking dollar has not materialized because of all the trade disruption caused by tariffs. Our trading partners are looking for other suppliers.

The weakening dollar also has sparked a sharp rise in the prices of gold and silver, as investors search for more stability. No investment strategy is foolproof. But the deliberate devaluation of the dollar reduces its reliability as a reserve currency. A weak dollar will in addition require the US, the world’s largest borrower, to raise interest rates on government securities as the US debt load steadily increases. As interest on the debt rises, it will crowd out other spending that Americans rely on. This increases uncertainty and unease as well.

I could list additional areas of uncertainty in the economy and US political life. The country is, as we all know, very closely divided. The number of voters who dislike both major parties is growing. It now approaches half the population. At times like these, people want to be able to count on basic stability. But the people are not getting that.

Reaction to aggressive ICE activity in Minnesota and Maine has prompted changes. The intensity of that reaction is due to the loss of life among the citizenry and the absence of any significant restraint on ICE. That will change. Already ICE leadership has adjusted its activities in Minnesota and has largely ended aggressive activity in Maine. These adjustments are ad hoc reactions. But they show that chaos is not favored by Americans in their own communities.

In the country at large, government policies have not succeeded in calming the public down. A few industries and companies benefit from on again, off again tariff levels. But most Americans do not. The more uncertainty we see, the less Americans believe that we are on the right track.

It appeared, when this article was published, that a lengthy government shutdown would be averted. And a new nominee for chairman of the Federal Reserve has been announced. These developments are comforting but not enough to calm American nerves. The next couple of months will see new developments, including issues of war and peace in places like Iran, Cuba, and Ukraine. They will also see new court decisions on tariffs as well as on the independence of the Fed and other independent agencies. Will Americans be reassured or further troubled?