On the Road: Tariffs Mounting, Latest Hit Steel and Aluminum

  • by itradmin - Thu, 03/01/2018 - 17:09
Trump Tweet

A tariff tantrum it is, seemingly, when it comes to US trade policy in 2018. Early this morning, US President Donald Trump tweeted out his latest thoughts on the rumored tariffs coming for steel and aluminum imports (below), apparently doubling down on his wish to see them come to fruition.

The President announced at a conference with leading steel manufacturers that he is suggesting a 25% tariff on steel and a 10% tariff on aluminum. The industry leaders were in strong support of the President’s proposal.

This announcement comes on the heels of import tariffs that already went through on washing machines and solar panels a few weeks ago. Some believe these moves are consistent with a protectionism theme that poses a threat to consumers in that basic prices may go up.

It is at this point that I want to remind our readers that ITR is not a partisan organization. Our opinion on US trade legislation (or anything else) is not based on the party that proposes or passes it but on the economic merits of the policy itself. It is just that when it comes to protectionism, there are not any long-term benefits to consider. There can certainly be short-term benefits to domestic providers of goods that have been combating dumping and, therefore, below-market pricing. Importers of those goods are not going to receive that benefit and will have to drive toward competitiveness with domestic providers via other means.

I would like to pass along a few facts for your consideration: Domestic Raw Steel Production in 2017 came in 5.8% above 2016, and the internal rates-of-change are suggesting more production gains ahead, at least through the near term. Overall, Steel Production is up 36.2% from the September 2008 26-year low. Additionally, annual Production in 2017 was higher than average annual production during the 2000s, the 1990s, and the 1980s.

The argument made on the basis of protecting jobs needs examination; annual employment in US Steel Mills averaged 169.0 thousand individuals in 2017, the highest level since 1992 and up roughly 7.3% from the 158.0 thousand individuals averaged annually throughout the entirety of the 1990s. For reference, the average annual Employment during the 27-year period from December 1990 through December 2017 is even lower, at 149.0 thousand. The application of tariffs is no doubt a response to foreign dumping of production into the US, but it is also a response to the commodity price downturn that hammered the US steel industry in 2015 and 2016 that left no raw material producers, domestic or global, unscathed.

There are risks from protectionism, as the inflation caused by these tariffs could affect the price of aluminum-canned foods and beverages you consume, the car you drive to work, the HVAC components heating and cooling your homes, among countless other items. Yesterday’s blog highlighted the need for businesses to plan on how they intend to message and pass along price increases to their customers. The macroeconomic challenge will be how will the US consumer at large handle increased pricing pressures when they ultimately trickle down to them while nominal wage growth hovers near 3.0%.

Connor Lokar
Economist