Trump entertained executives from the steel and aluminum industries at the White House for an announcement that he would impose tariffs of 25% on steel imports and 10% for aluminum. The steel and aluminum industries cheered the move, and of course they would. It will make them more profitable. It would make steel union workers happy because it will give them more job security and likely higher wages. It will protect those industries from competition from international producers.
It is easy to imagine, and even to estimate, the jobs that will be preserved or created in those industries. That is what the president is crowing about in his comments about saving American jobs and protecting American industry. That is what is seen. What is less easy for many people to imagine is the number of jobs that will be lost in other industries because of the action and other things that are not able to happen because of it. The problems with the tariffs are many, from increasing prices to American industry and consumers to trade retaliation from the governments of other nations.
The thrust of the president’s move is that steel and aluminum are key American industries that are economically and militarily important, which is true. What is not true is that the the economy or the military would are being hurt by cheaper imports. It is, in fact, the opposite. Most production processes use steel either directly as inputs or indirectly as machines, buildings, and so on. Automobile manufacturers, aircraft builders and other major users of the metals will have costs significantly inflated. Those costs will cause job loss or stagnation in other industries, cause them to be less profitable and less able to pay competitive wages, and/or increase the prices to consumers. Foreign countries will not be paying for the increased profitability and wages of the steel companies. They will come directly from the pockets of consumers, wage earners, suppliers, and stockholders of companies that use the products with artificially inflated prices.
To be fair, Trump is not the only president or politician who promotes this kind of economic ignorance. One of the supposed stimulus acts during the great recession of 2008 was steel protectionism. In that case, it helped the steel industry, but hurt all other Americans, and was a contributing factor to the extremely sluggish recovery.
The president charges other countries with making American steel companies uncompetitive, but it is rather the steel companies themselves who make themselves uncompetitive to the extent that they are. Some companies are not as profitable, though Nucor Steel still has profits of over $1 billion. Other companies, especially the mini mills, are doing well, especially those that invest in newer technology. The benefit of competition is to foster innovation to increase productivity and to cut costs. The whole economy benefits from that, especially when taken by such key industries. Protecting them from competition is protecting them from innovators and allowing them to remain inefficient.
The other even darker side is that the move and the rhetoric behind it is likely to spark retaliatory action by other governments. President Trump likes to blame China, but seven other countries (with the European Union included as one) import more steel than China, whose imports are only one fifth of either Canada’s or European Union’s, both strategic trading partners.
Many of the political leaders have already said that they will take retaliatory action if this occurs, action to make it politically painful. Unfortunately the president or other politicians, or even steel and aluminum industry personnel, will not feel the pain. It will be the American people who pay the price.