Others have given static explanations showing that even if the United States imported no steel or aluminum, it would still have a trade deficit. Note that those assume
That a tariff could reduce imports to zero. It is more likely that a tariff would reduce imports by just enough to cover the tariff.
That exports don't decrease. However, a number of countries are threatening to take actions to reduce US exports. Also, some exported products may be produced with imported steel or aluminum.
That the trade deficit is driven by demand for imports. If instead, the US trade deficit is driven by the need to expand the money supply worldwide, then the trade deficit will stay pretty much the same. Either exports will decrease or imports will increase.
That the US won't just import something else. For example, if the US doesn't import steel, it might find itself importing iron to make steel.
That the US won't stop exporting something. For example, if the US is making more steel, it may have to use more coal. If it burns coal, it can't also export it. Similarly, aluminum is electricity intensive. So the US may have to burn more coal to make electricity to make aluminum.
As noted in each, the assumption is unlikely to hold. So we should expect this to be ineffective at its stated purpose. It is more likely to cause
- Inflation. Tariffs make things more expensive.
- Supply chain problems. Some products could become difficult to purchase, cutting into the profits of manufacturers and retailers.
- Shortages. We don't necessarily have the slack capacity to fully supply demand.
- Loss of exports. Both because of new foreign tariffs and because of an inability to produce cheap products for export. Remember that some of what the US imports may be used to produce products for export.
- Job loss. If people are not making products for export nor for domestic use, then why employ them?
Even assuming that a trade deficit is a bad thing, this is the least likely way to reduce it. Better approaches:
Stop use of the dollar as a reserve currency. China and Russia would prefer a basket of currencies, so there would be some international support for this.
Increase foreign aid by the current size of the trade deficit. Currently, the US sends money overseas in exchange for goods. This powers its use as a reserve currency. The US could just send the money. It's unclear whether doing this would decrease imports or increase exports. It might do both. Of course, this would be politically unpopular.
Are trade deficits bad?
Of course, the concept of reducing the trade deficit causing short term benefits is weak. Currently, the US pays only half price for goods. Instead of having to export as much goods as it imports, the US imports twice as much it exports. In no other endeavor would we describe that as bad.
- If I work only twenty hours a week but get paid for forty, would I complain that I needed to work more?
- If I go to a store and buy $100 of groceries but pay only $50, do I complain that I didn't pay enough?
- If I employ a maid who does forty hours of work but only charges for twenty, do I insist on paying for forty?
Yet the US gets goods (imports) in exchange for money. Since the money is used in international transactions, the US doesn't even have to print it. It's just numbers in some computer database. And people complain.
Who cares about exports? Produce more for domestic consumption. Then we'd have both the jobs and the goods.
There is a long term issue. Eventually people might stop hoarding US dollars and expect goods for them. But if that's really a problem, then end use of the US dollar as a reserve currency. Replace it with a basket that includes other currencies, e.g. the euro and the currencies of China, Japan, Russia, etc. If the US dollar is given the right weight in that basket, it could then maintain the same foreign dollar reserves. That weight may need to change over time, but to maintain the current level, it would go down.
Under such a basket, the US would run a trade surplus. The US would have to export in order to get the new global currency. That would be a big change from now, when the US prints the global currency. There are a lot of potential negatives from doing that. But at least that would work. It would eliminate the trade deficit.