After worrying gun owners earlier this week with his comments on gun control, President Trump began to worry investors and businessmen with his plan to slap a 25 percent tariff on imports of steel and a 10 percent tariff on imports of aluminum. The Dow Jones lost over 400 points after Trump’s comments. That of course leads one to wonder, if Trump continues on this course of slapping tariffs on imported goods, will he be responsible for killing the economy?
US imports of steel in 2017 amounted to 34.5 million metric tons, a 15% increase from 2016. Imports from Canada made up the largest share (16.5%), followed by Brazil (13.5%), and South Korea (9.9%). The next three largest importing countries were Mexico, Turkey, and Japan, with other countries making up 40% of imports. Total US steel production amounted to 81.6 million metric tons, with total domestic demand equaling 99.7 million metric tons. Overall import penetration of the steel market is estimated at 26.8%.
The latest full-year figures for US aluminum production indicate that 2.3 million metric tons were produced in the United States, both primary and secondary, versus about 6 million metric tons imported. Net import reliance has increased from 11 percent in 2012 to 52 percent in 2016. The largest import partners were Canada (59%), Russia (6%), United Arab Emirates (6%), and China (5%).
The Commerce Department recently released a finding that steel and aluminum imports threaten national security, and recommended placing tariffs on imports in order to reduce the amount of imports. The common view is that the steel and aluminum industries have been damaged by cheap imports from China, even though the import data doesn’t bear that out. It’s also curious how steel and aluminum imports are such a threat to national security, since our major trading partner is Canada. Unless we’re planning to go to war with Canada anytime soon, or with any of our other friendly trading partners, that supply of imports shouldn’t be threatened.
If the President does decide to slap tariffs on steel and aluminum imports, the hope is that the domestic steel and aluminum industries will react by producing more steel and aluminum to fill domestic demand. That’s doubtful, as part of the domestic production decline has been brought about by the closure of production facilities. Those won’t be easy to bring back online.
Domestic heavy industry has been burdened over the years by a multitude of ailments. Executives depended on government favors to help their industry, unionized workforces drove up the cost of production, increasingly stringent environmental regulations forced some steel mills out of business, and an industry that expected to coast along based on its historic prestige failed to make the necessary business adjustments to compete against foreign competitors. Despite all that, the steel industry isn’t exactly in the doldrums.
Steel production is still twice as high today as it was during the roaring 20s, and about on par with where it was during World War II. Employment within the industry has declined, as production per worker has grown tremendously thanks to improved technological processes and more efficient steel mills.
One thing about these tariffs is sure: consumers will bear the brunt of the price increases due to more expensive steel and aluminum. From cars to planes to cans of beer, everything that has steel or aluminum in it will get more expensive. By attempting to provide a concentrated benefit to two industries that no longer play a major role in the economy, President Trump could end up costing companies and consumers across the country. That’s why the Dow slid so much after the President’s comments. And if he continues slapping tariffs on other imports, consumers will continue to pay more. If that weren’t bad enough, China and the European Union have already threatened to retaliate by slapping tariffs on their imports from the United States. That would harm American exporters such as Harley Davidson, Levi’s, or Jim Beam, among others.
No one wins in a trade war. Consumers pay more, businesses lay off workers, and if no one backs down then the retaliatory cycle worsens. The effects of Smoot-Hawley are well-known and understood, so let’s hope that the President doesn’t continue to enact tariffs and drive the economy downhill.