Yesterday, President Trump signed executive orders levying new tariffs (i.e. taxes) on imports of steel and aluminum into the U.S.
Getting American workers back to work is a good goal, but tariffs could lead to counter-productive results. They will have rippling impacts across the economy that drive up production costs in other industries, could lead to job losses, and force American families to shell out more for the goods they rely on.
President Trump exercised his authority to impose a 25-percent steel tariff and a 10-percent aluminum tariff. Originally, no country would be exempted, but the Administration is making allowances for Mexico and Canada, two of our closest trading partners, as a bargaining chip to renegotiate the North American Free Trade Agreement (NAFTA). The orders are flexible enough to exempt other countries as well.
The rationale for this tariff is national security. According to the administration, imported steel and aluminum displace domestic production and puts the U.S. at risk of not having enough to supply to support infrastructure and national defense needs.
Negotiating better trade deals is also an impetus. The president noted:
“We lose $800 billion a year on trade,” he said in the White House Roosevelt Room, surrounded by cheering workers, referring to last year’s U.S. trade deficit. “It’s going to start changing—has to change."
This goes against free trade. Free trade is not just a nice kumbaya idea. The foundation of free and prosperous economies is a system where countries specialize in producing what they can most efficiently and trade for what they cannot. It’s Economics 101. As consumers, we benefit from lower prices and a wider variety of goods. Our economy is built on industries that export goods and services to other countries and supports millions of jobs.
The challenge is that the benefits of free trade are diffuse, meaning millions of people enjoy lower prices and more options, but the costs of American jobs – though smaller – are concentrated. Images of shuttered steel mills and out-of-work workers are powerful.
Tariffs are meant to protect and even prop up industries that have dwindled because of foreign competition. We’ve seen this tried in the past and the impacts were devastating.
This is the wrong move for several reasons.
First, the rationale of national security is broad and could open the door to tariffs in other industries. We have yet to hear any assurances that other industries and goods won't also face tariffs.
Second, as I wrote about earlier this week, tariffs have the unintended consequences of driving up the costs of other goods. Steel and aluminum are inputs for a variety of products that we use from construction equipment and building materials to cars, fences, and home appliances. Check out this list of 10 products that could get more expensive because of the aluminum tariffs.
Third, these tariffs could trigger a trade war in that our trading partners will simply reciprocate with tariffs of their own. In that war, consumers lose.
Fourth, it could lead to job losses in related industries. When we look at President George W. Bush's 2002 steel tariff it resulted in the loss of 200,000 American jobs in steel-using industries – greater than the whole steel industry.
The Independent Women's Forum disagrees with these tariffs. Hadley Heath Manning, policy director at IWF, suggests a better way forward to help these industries:
"The true path to growth for American industries, including steel and aluminum, involves reducing barriers and burdens on business. The tax reforms and deregulatory actions that President Trump has backed so far are examples of progress in the right direction. To levy heavy tariffs now is to take a step backward and work against our own economic success.”