United States Steel stocks may be in worse shape after President Donald Trump's tariffs take effect, even though these are meant to help the steel industry — but it will be a "great short," according to a Wall Street analyst.
Vertical Research Group analyst Gordon Johnson told CNBC's "Closing Bell" on Tuesday that "there was too much good news priced in" U.S. Steel's former valuation.
Johnson called U.S. Steel "significantly, fundamentally, worse off" with the tariffs, set to begin later this month. He doesn't think the tariffs will do the company or investors much good in the long run.
He added: "It's going to hurt the global economy and steel prices."
Johnson also pointed out that operating costs for the company, including costs associated with its soon-to-be-reopened Granite City Works integrated plant in Illinois — what he called "one of the least efficient steel mills in the world" — are up. This means they will not benefit from the higher steel prices, he said.
On Tuesday, the group downgraded U.S. Steel stocks from hold to sell. Stock prices quickly fell about 8 percent, from about $44 to around $40.
"The steel mills are not going to be able to go to the government and argue for protectionism. They're going to have to compete in a global market now. That's going to be bad for prices," Johnson added.
But the analyst, who specializes in alternative energy, metals and mining and equipment rental research, told CNBC this might be good news for investors.
"It's a great short," said the Wall Street analyst, referring to the process of selling borrowed shares in the hopes of buying back the same stock at a lower price and turning a profit.
He pointed out that former President George W. Bush placed tariffs on imported steel back in 2002 for just eight months. But he gave more than 700 exemptions on steel products and countries because the U.S. didn't — and still doesn't — produce enough steel to meet its needs.
"If you actually shorted U.S. Steel stocks on that decision, you would have made a lot of money," Johnson said. "The steel stocks got hit pretty hard."
"If President Trump actually has to implement these exclusions from products and countries, you're going to see their earnings go down through the year," he added.
Former President Barack Obama also granted steel mills tariffs while in office, but implemented them slowly.
Meanwhile, the guidance for U.S. Steel's 2018 Ebitda is $1.7 billion. But Johnson said those numbers should be higher — $2.5 billion to $3 billion — with accelerated steel production and its plant reopening later this year.
U.S. Steel did not respond to a request for comment.