For United States Steel Corporation, Tariffs Are On Point

Advertisement

United States Steel Corporation (NYSE:X) is poised to benefit from President Donald Trump’s recent announcement to place tariffs of 25% on imported steel. There has been a great deal of analysis over why Trump chose to do this and what effect it will have on steelmakers, as well as consumers here in the U.S. But what we do know is that the tariffs should be bullish for X stock.

Source: Shutterstocks

By placing a 25% tax on steel imports, the obvious result is that it becomes more expensive to import steel, and therefore less steel will be imported. That means supply here in the United States will be reduced, and in turn steel stocks like X stock will need to increase their production. With more production comes more job demand, and with more job demand comes more jobs.

The move is both political and economic. Anything that puts Americans to work is a good thing under President Trump’s agenda. That’s a promise he made to the American people, and it already has been paying off. These blue-collar workers are the kind of Republicans and Reagan Democrats that Trump is hoping to win over, beyond those he already has won over.

From an economic standpoint, more jobs is good not only for United States steel Corporation, and for American workers, but for the American economy. More jobs means more money being spent into the economy. Because X stock revenues should benefit from more demand, X stock net income should also come along for the ride.

This is also important, not only for X stock, but for the entire steel industry. Steel imports into the United States accounted for 23% of the market in 2009 — today they account for almost 33%.

If that trajectory had continued, America’s ability to keep pace in the global economy would continue to be hampered. Clearly, President Trump didn’t want to see United States steel industry going the way of the coal industry.

Before the tariffs were even announced, United States Steel Corporation stock had announced almost $1 billion in cash flow for 2017, and an increased $1.5 billion this year. That number could go even higher now that the tariffs are in place. Thanks to all of this cash flow, United States Steel Corporation stock has been able to cut its debt load to $1.15 billion. That means a manufacturing company here in the United States may actually be debt free before the end of the year. That’s astonishing, and great for U.S. Steel stock.

We do have to ask, though, whether other parts of the American economy will be affected in a negative way. If the price of steel goes up, the price of items containing steel may go up.

Remember, imports are cheap — that’s why they have taken over so much market share. Cheap steel means cheap products, that’s good for consumers. But if manufacturing here at home is going to be more expensive in terms of products that contain steel, then so will goods that contain that steel.

Steel is, of course, prevalent in many important manufactured goods. Cars, for example. Airplanes. Trains. Just take a look around you — imagine how many things have steel in them. So while X stock does look attractive right now, have a careful look at other companies that may not do so well as their prices are squeezed upward.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/u-s-steel-will-benefit-from-tariffs-but-will-consumers/.

©2024 InvestorPlace Media, LLC