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.