US Steel Bulls vs. Auto Uncertainty: Navigating the Trade Deal Divide

The partial US-UK trade deal, which resolved automotive tariffs while leaving steel unresolved, has created a stark divergence in investment opportunities. For US steel producers, the unresolved terms present a near-term bullish catalyst, while automakers—though benefiting from tariff cuts—face lingering risks tied to escalating steel disputes. This analysis outlines a tactical strategy to capitalize on sector rotation and commodity dynamics, supported by tariff timelines and supply chain data.

Steel: Protected Markets Fuel Near-Term Gains

The unresolved steel tariffs (set to expire on July 9, 2025) create a "wait-and-see" advantage for US steelmakers. Under current terms, UK steel faces a 25% tariff, but failure to meet US security standards could push this to 50%. This uncertainty has already tightened global steel supply chains, with US producers like US Steel (X) and Nucor (NUE) benefiting from protected domestic demand.

Data shows X's stock rising 18% YTD as steel prices hit 12-month highs, driven by reduced imports and supply constraints. With the July deadline looming, a failure to resolve terms could push prices higher, further boosting margins for domestic producers.

Automotive: Quota Benefits vs. Steel-Driven Risks

The automotive sector secured a quota-based tariff cut: the first 100,000 UK cars face 10% tariffs, vs. 25% for excess volumes. This benefits companies like Ford (F) (which sources Jaguar Land Rover engines from the UK) and UK-based Jaguar Land Rover. However, long-term risks persist:
1. Steel Cost Volatility: Automakers rely on steel for ~20% of vehicle content. If tariffs escalate to 50%, UK steel could become prohibitively expensive, forcing automakers to either absorb costs or restructure supply chains.
2. Quota Ceiling Risk: Ford's F-150 and Jaguar's SUVs may hit the 100,000-unit quota quickly, triggering higher tariffs on overflows.

F's stock rose 9% after the deal but remains volatile, reflecting market skepticism about sustained cost savings amid unresolved steel terms.

Geopolitical Risks: The "Special Relationship" Buffer

The US and UK's historical ties may mitigate worst-case scenarios, but geopolitical posturing could delay resolutions. Key risks include:
- Section 232 Investigations: Ongoing probes into UK steel supply chains could lead to retroactive tariffs if security gaps are found.
- EU Retaliation: The EU may impose counter-tariffs on US automakers if steel disputes spill into broader trade wars.

Investment Strategy: Rotate into Steel, Wait on Autos

1. Overweight US Steel Stocks:
2. US Steel (X) and Nucor (NUE) are prime plays on protected domestic demand and potential steel price spikes.

3. Consider using options (e.g., X call options with strike prices above $35) to capitalize on near-term upside.

4. Underweight Automakers Until July 9:

5. Avoid Ford (F) and UK-listed automakers until steel terms are finalized.

6. Short positions or bearish options on automotive ETFs (e.g., CARZ) could hedge against quota ceiling risks.

7. Commodity Bet: Steel Futures:

8. Buy US Steel Futures (SL) to profit from supply tightness and tariff-driven price hikes.

Conclusion: A Short-Term Steel Rally, Long-Term Auto Uncertainty

The US-UK trade deal has created a clear tactical edge: US steel stocks are positioned for gains until July 9, while automakers remain hostage to unresolved terms. Investors should prioritize capitalizing on the steel sector's near-term catalysts while awaiting clarity on automotive risks. Monitor the July deadline closely—failure to resolve steel tariffs could trigger a commodities rally and a sharp correction in auto equities.

Act now on steel, wait on autos.

Risk Disclosure: Trade with caution. Steel stocks and commodities are highly sensitive to macroeconomic shifts and geopolitical developments. Consult with a financial advisor before making investment decisions.