Tariff Troubles

The list of who would be hurt by new tariffs keeps getting longer.

On March 8 the Trump administration announced upcoming tariffs of 25% on imported steel and 10% on imported aluminum starting next week. Mexico and Canada are currently exempted from the tariffs. The tariffs are the follow through on a campaign promise and are intended to revitalize the U.S. steel and aluminum industries, make U.S. metals more competitive for domestic manufacturers and for U.S. defense purposes; and address long running concerns that foreign markets such as Korea and China have been intentionally flooding U.S. markets with artificially cheep metals.

As soon as the tariffs were announced there was alarm from some obvious places. U.S. auto manufacturers use imported steel and having the price of this commodity go up by this much would mean the price of a domestic car could go up by about $300, which is not a huge margin but enough to make a buyer consider a foreign competitor or to forgo options that can be profitable for manufacturers. American made motorcycles would get pricier as well and Harley Davidson has voiced concerns that in addition to making their products more expensive to produce, the tariffs will cause other countries to impose tariff of their own on U.S. made products and hurt international sales.

Other industries and businesses have also been vocal about the negative impacts these tariffs would have on their bottom line. U.S. beer giants Anhueser-Busch and Molson Coors will have to pay more for each can they fill. And the Brewers Association, a trade association for small and independent craft brewers, issued a statement explaining that this will increase prices not just for beer cans but also for kegs, tanks, and other equipment that is essential to the brewing industry. Of course steel and aluminum are important to whole range of other industries. All kinds of businesses from canned soup makers to manufacturers of washers and dryers and airplanes and construction equipment will be impacted when the tariffs take effect.

Now, potential drawbacks from the tariffs are being anticipated in some unlikely places, namely the American steel industry. The U.S. steel industry in general and the so called “rust belt” in particular are the precise people these tariffs are supposed to help, but as it turns out international trade and U.S. industry is a little more complicated than a simple us versus them scenario.

There are many U.S. steel businesses and workers that will see a huge economic boost from the tariffs. However, there are some steel applications that use imported steel exclusively because there are some types of raw steel that are not available from the U.S. So for certain steel working companies in the U.S. these tariffs will drive up prices and no cheaper option will be available. This is likely to lead to job losses in the very area that the tariffs were intended to save jobs, and maybe even the closure of certain U.S. steel working businesses.

The steel tariffs will have wide ranging impacts across economic sectors, some will be positive some will be negative and some will be mixed. Time will tell whether the balance is good for the U.S. overall, or whether these tariffs serve to strengthen one or two sectors of the economy at the expense of many others. Whatever else these tariffs become they should also serve as a lesson. International trade is anything but simple. The U.S. is both importer and exporter, supplier and buyer; American industries deal in raw material and manufactured goods, and rely on international trade in ways that aren’t always obvious. Finding a balance between protecting U.S. industries and getting what American businesses and American consumers need from international markets is a nuanced and difficult task, and when getting it wrong can have far reaching consequences.

Comments
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A_Chapman
A_Chapman

Editor

That's a good question Jon, but I think our low barriers to imports are a double edged sword. On the one hand it makes it hard for U.S. companies to compete with certain goods, on the other hand it means U.S. consumers have access to very cheap imported goods, and U.S. consumers LOVE cheap imported goods. A lot of people talk a lot about buying American but when it comes down to it they choose the imported item off the shelf even when the difference it just a few cents. So I agree retaliating and raising trade barriers is not the answer. I'm going to cop out a little bit here and say there probably is no one answer, we have to look at things on a case by case basis and make policy that balances the needs of U.S. industry with the needs of U.S. consumers and other priorities and try maximize good and minimize unintended negative consequences. In some cases that may mean raising tariffs. But I think the problem with these steel and aluminum tariffs is that they were billed as an easy quick fix that would only have positive impacts for the U.S., and that simply isn't true.

Jon Saltzman
Jon Saltzman

Editor

Alexis, what do you say about the nature of trade where many of America's trading partners have higher barriers to U.S. goods than the U.S. does? What's the solution? BTW I don't think retaliating is the answer. But what's wrong with saying that we will raise our tariffs to your levels or you can lower them to ours?

A_Chapman
A_Chapman

Editor

Jon, I think it's really interesting that Kudlow feels that way. I feel like tariffs are always a problematic negotiating tool because both sides have it so it just opens up the threat of tariff escalation. We impose a tariff on steel, then other counties impose a tariff on U.S. made cars and motorcycles, then we impose another tariff, and so on and so forth, and nobody really wins.

A_Chapman
A_Chapman

Editor

Pat, I agree the price increase on the car is small, but like you say we'll have to wait and see, there may be other consequences of this, good or bad, that we can't foresee yet. Globalization has turned a lot of industries into a very tightly strung international web, and when you pull one thread it can move a lot of other things that we may not want moved.

Jon Saltzman
Jon Saltzman

Editor

Nice work Alexis! Once more you cut through a very complex issue and get right to the heart of it. I wonder what Trump's new economic advisor, Larry Kudlow will do to help the President see the complex nature of this issue? Kudlow is not a fan of tariffs except - as he says now- as a negotiating tool.

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