Steel tariffs are bad for (almost) everybody

Imposing steel and aluminum tariffs probably won’t bring back jobs—but there will definitely be plenty of downsides.

Steel worker2

For all his populist bluster, Donald Trump has by and large governed like a fairly conventional Republican. Tax cuts for the wealthy, slashing regulations, attempting to repeal Obamacare—all standard GOP fare, policies that we would have seen from a would-be President Rubio or President Cruz (minus the tweeting).

Last week, Trump made one of his first serious attempts at bucking the party agenda when he announced his intentions to place a 25 percent import tariff on steel and 10 percent import tariff on aluminum. Not surprisingly, he was lambasted by fellow Republicans and business leaders alike as the Dow took a dive to the tune of 600 points.

So why did he decide to stick his neck out on this of all issues? To protect our workers, of course! There’s only one problem: these tariffs are far more likely to hurt the average American worker than to help them.

Tariffs probably wouldn’t bring back many, if any, jobs

At first glance, this seems like an odd place for Trump to start digging in his heels. For one thing, there aren’t that many jobs in the U.S. steel industry, to begin with. According to the American Iron and Steel Institute’s most recent profile of the industry, there were just under 140,000 people employed in steel in 2016 compared to a peak of 650,000 in 1953. To put that in context, the automotive industry (including manufacturing and retail) employs over 4 million people today.

Despite Trump’s rhetoric, most of that job loss was due not to free trade but to automation, as technology has vastly improved since the industry’s heyday. “Labor productivity has seen a fivefold increase since the early 1980s,” the AISI report notes, “going from an average of 10.1 man-hours per finished ton to an average of 2.0 man-hours per finished ton of steel in 2016.”

It’s also worth noting that tariffs like the ones Trump is proposing probably wouldn’t stand up to the scrutiny of the World Trade Organization, which is tasked with enforcing the internationally agreed-upon rules of free, fair, and predictable trade between countries. Generally, the only kind of tariffs the WTO allows are ones to prevent dumping, when one country floods another’s market with artificially underpriced goods. While China has been accused of dumping in the past, most U.S. steel imports come from countries that tend to play fair. In fact, China didn’t even crack the top 10 source countries for U.S. steel imports, ranking behind stalwart trade partners like Canada, Japan, South Korea, and Germany.

The real impact of tariffs

While there will likely be few upsides, there are plenty of possible downsides. Inevitably, the price of steel and aluminum would spike, which would cause ripples across the economy. The production costs for industries that use steel and aluminum would go up, meaning that their products will be more expensive, which in turn could adversely impact both workers and consumers alike. Those 4 million people working in the auto industry? Some of them might find themselves out of a job. That car you want to buy? Get ready for a higher sticker price.

It’s no surprise that other American businesses are not happy about the possibility of steel tariffs. Representatives from industries ranging from car manufacturers to beer brewers made statements denouncing the idea in the wake of Trump’s announcement, citing the possibilities of increased cost to consumers and potential job loss.

The best-case scenario is that this is the only negative effect caused by these tariffs. The worst-case scenario: this explodes into a full-blown trade war, which would be a disaster for everyone involved. Countries could retaliate with tariffs of their own on American exports—and it likely wouldn’t be limited to steel and aluminum. In fact, the European Union is already threatening to respond with tariffs on American goods ranging from bourbon to Harley-Davidsons. This would make it more expensive for other countries to buy our exports, which would lead to further job loss on the home front, especially in export-heavy industries like agriculture.

This isn’t just theoretical; we’ve been down this road before

In 2002, amid staggering and steady job loss and bankruptcy in the steel industry, President George W. Bush imposed a 30 percent tariff on imports. Though there was a brief respite in the decline of employment in the short term, the numbers started dropping precipitously again a year later when the World Trade Organization ruled the move illegal, and the European Union threatened retaliatory tariffs—in other words, a trade war.

Bush ultimately succumbed to the pressure and lifted the tariffs in December 2003—more than a year before they were initially set to expire. Steel employment stabilized once again soon afterward, even in the absence of his protectionist policy. Meanwhile, as many as 200,000 jobs in other sectors were lost because of the tariffs, according to some estimates. That’s more jobs than there are in the entire U.S. steel industry.

steel jobs
Source: US Bureau of Labor Statistics / Bloomberg

So, what’s the upside?

No matter how you cut it, the economic costs of these tariffs, on net, far outweigh any potential benefits. The combination of reduced employment, higher prices, and a looming trade war is a pretty steep price to pay to protect an industry with relatively few jobs. Even if the tariffs did somehow bring most of the steel jobs back— which again, is a dubious prospect at best—would it really be worth the effects it could have on the economy writ large?

There would, however, be one benefactor: the U.S. steel industry. But any gains realized will go to shareholders, not workers. Indeed, while most stocks tumbled after Trump first made the announcement, the shares of steel companies rallied.

And it just so happens that Trump’s trade team has deep ties to the U.S. steel industry, including Commerce Secretary Wilbur Ross, who made his fortune investing in bankrupt steel companies. Also, as Vox’s Matt Yglesias highlights, “the Metals Service Center Institute, a trade group that favors anti-import measures, held last year’s annual confab at the Trump Doral resort in Miami.”

There are better ways to help American workers

To be clear, free trade does in many ways hurt some portion of the American workforce. But if Trump really wanted to protect workers from collateral damage caused by free trade and globalization, steel tariffs aren’t the best place to start.

Trump could have geared his signature tax bill more toward helping the middle class and working people in general, rather than giving most of the benefits to corporations and the wealthy. He could have focused on an industry with more workers. He could have invested more in training and retraining programs, rather than trying to cut them. He could have tried to fix the problems with Obamacare, or at least proposed a meaningful alternative, instead of vindictively hacking away at it. He could have bolstered Medicaid, rather than threatening to cut it. And so much more.

But as we’ve seen from this President time and time again, he seems more interested in picking a fight or divvying up the spoils of war than he does in actually trying to implement policies that might ease the plight of the American worker. While this is one of the few populist talking points from his campaign that he hasn’t thrown by the wayside, it doesn’t augur much benefit to the people he claims to be fighting for.

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