Steel and Aluminum Tariffs a Massive Net Loss for U.S. Economy

Following in George W. Bush’s footsteps, President Trump increased tariffs on foreign-made steel and aluminum by 25 percent and 10 percent, respectively, in March. But he exempted U.S. allies such as Canada and the EU from the additional levies until May 1. While exemption extensions are possible, they are far from certain.

Economists estimate the tariffs could save roughly 33,500 jobs in the steel and aluminum industries. But consumers tend not to buy ingots of steel at the grocery store; steel and aluminum are useful mainly as inputs for other industries. From automobiles to canned foods to construction, higher steel and aluminum prices mean higher prices for goods throughout the economy, and the costs will ultimately fall on consumers. At the same time, sheltering domestic producers from competition can lower product quality.

All in all, the tariff increases are expected to cost five jobs for each one saved according to a Trade Partnership study. The net loss is expected to be as much as 146,000 jobs. Politically, this is not a winning strategy in an election year. More importantly, that’s a lot of families that will be asking tough questions about how to pay the rent and put food on the table, through no fault of their own.

Not only are our trading partners not lowering their trade barriers against U.S. goods, they are raising them. The EU in particular is targeting bourbon and blue jeans, two staples of Americana. It is obvious that the motivation for these retaliatory tariffs is political and not economic. Kentucky, home state of Senate majority leader Mitch McConnell, produces 95 percent of the country’s bourbon. And Levi Strauss, the iconic blue jean company, was founded in San Francisco, home city of House minority leader Nancy Pelosi.

Factoring in these and other potential tariff increases, and the administration’s blustery posture could end up costing American workers a lot more than 146,000 jobs.

If the intention of raising our own tariffs is to get our trading partners to lower theirs, then someone in the administration has made a huge negotiating error. One of the wisest quotes on trade is attributed to Cambridge economist Joan Robinson: “Even if your trading partner dumps rocks into his harbor to obstruct arriving cargo ships, you do not make yourself better off by dumping rocks into your own harbor.”

As I noted recently, U.S. steel and aluminum production are both over their 40-year running averages. The industry is healthy, and maintaining an open, competitive global market is necessary to keep it that way. Rather than throw still more rocks into U.S. harbors, the administration’s top priority on trade should be dredging them out. For America to truly be a leader in the world economy, it must lead by example.