Donald Trump set the tariff on steel imports to 25% in March 2018.

I understand the decision is part of the trade war against China.
And the trade war is motivated by the overall strategy of "Make America great again" and his perception that the US are treated unfairly by China. So I assume the trade war including the steel tariff aims to directly benefit the economy of the US, or force changes in trade in a short period of time to benefit the US economy.

The effects of tariff changes are complex. I expect the effects are exceptionally easy to track or identify for the following reasons: The tariff change is relatively large. It applies to a very diverse group of materials, as steels are a surprisingly complex group of materials with a wide spectrum of material properties and applications. Also, steel is used in large amounts.

Whatever the intention is, the resulting changes are just to complex to be all known before. It is hard to understand whether the changes are helpful in terms of reaching the intended results. But to have any vague idea of the results, knowing the economic and other tangible effects are needed as a base.

An increase by 25% in the price of a group of common materials with many uses in industry and buildings is a huge change.

As I know that the steel production in German Ruhrgebiet has dropped very much many years ago, I would not think that there is a large amount of steel production in the US today.

What is the effect of the tariff?
Is the volume of imports significantly decreased?
Is the volume of steel used significantly reduced?

  • Politically or economically? – K Dog Oct 2 '19 at 11:49
  • @KDog Both of them. – Volker Siegel Oct 2 '19 at 12:16
  • Please amend the question to include politics. It reads as solely economic. – K Dog Oct 2 '19 at 14:35

What is the effect of the tariff?

The tariff makes it more expensive to import goods that fall under the tariff (steel and aluminium) into the United States from those countries to which the tariff applies (e.g. China).

The direct effect is quite clear, it is more expensive to buy goods which have a tariff on them compared to goods that do not. Even if those goods with the tariff were a bit cheaper initially, 25% may be enough to offset the difference with the same goods domestically or another country which is not affected by the tariff (because they are exempted).

In practice, this means that the goods are more expensive. If the goods would still be available on domestically or from some country that's not affected by the tariff then that country would always have been (one of) the cheapest so the imposing of tariff wouldn't make sense anyway (because the market forces buyers to buy from the cheapest source, especially when it comes to raw materials).

A consequence of more expensive goods is that other businesses that use these raw materials will have more expensive raw materials which cuts into profit.

On the other hand, domestic and foreign producers of these goods not affected by the tariffs will benefit, after all their competition is less competitive.

Roughly speaking, these specific tariffs will benefit US steel and aluminium producers but hurt manufacturers using a lot of steel and aluminium. This PBS NewsHour report shows that.

To what extent specific businesses or whole industries are hurt is difficult to estimate. Many factors play a role including how competitive these industries are to begin with.

| improve this answer | |
  • And it can start a trade war possibly leading to a global manufacturing recession (of course, you need to escalate it beyond aluminium to get there.) The WTO complaints are smalls fries in comparison. – SX welcomes ageist gossip Oct 2 '19 at 12:10
  • @Fizz yea that's probably more the way of implementing it than tariffs in general. The allegation was that China had been dumping cheap steel to row out competition. If that's the case, the US could have rallied allies for a joint response so there couldn't really be escalation without China hurting itself a lot more. A good example of this is the imposition of such coordination are US-EU sanctions on Russia. – JJJ Oct 2 '19 at 12:23
  • 1
    Also bailouts (to politically sensitive US sectors hit by retaliations) politics.stackexchange.com/questions/46187/… – SX welcomes ageist gossip Oct 2 '19 at 12:30
  • This only addresses economics. – K Dog Oct 2 '19 at 13:38

Tariffs can have some unexpected effects. PBS ran a story for example how increases in steel tariffs that were not coupled by increases in nail tariffs resulted in more nail imports and hardship for a local US nail manufacturer.

As another example, and more generally

Businesses like Detroit Bikes react to tariffs in many ways, and one of the most significant is in finding alternate sources of goods. If Pashak succeeds in finding cheaper substitute parts, he keeps costs down on his bikes, which range from about $400 to $1,250. That then blunts the overall price increase for his customers.

Economists call this "substitution," and say it affects how much consumers pay for tariffs.

"The impacts of these wars depend heavily on the substitution effect," says Amit Khandelwal, a professor of international business at Columbia University.


But finding replacements for things like bike chains or software chips is considerably harder; factories can't just be ginned up on demand. "Generally, the more specialized products often take longer to substitute," Khandelwal says.

Other indirect effects include hardship in other sectors due to external retaliatory tariffs. The US agriculture being the prime example here, with some bailouts put in place to compensate.

Ultimately the trade war is blamed at least in part for the current global manufacturing recession/slump. The US took longer to feel that, but apparently it's hit home as well. (See also my question on econ.SE on that.)

As far as your more focused questions, US steel imports did fall some 12% in the first this year. Actually 14% including August. US steel prices have generally followed the vagaries of tariff announcements:

enter image description here

US steel production did go up to 2014 levels (previous source) after tariffs were enacted.

Production is up since 2016, but it has been higher as recently as 2014. Figures from the U.S. Geological Survey, which gets its data from the American Iron and Steel Institute, show an increase in raw steel production from 2016 to 2018 of 10.8%. Production hit 87 million metric tons in 2018, but was 88.2 million metric tons in 2014.

“These are improvements, but we’ve seen improvement of similar double-digit magnitude in the past,” John Anton, director of steel analytics at IHS Markit, told us in citing monthly year-over-year production increases, from a high of 9.1% in January to a low of 3.1% in June. “We’ve also seen deep cuts” in production in the past, he added. “But production is up.” [...]

The price spike in 2018 was unsustainable. U.S. steel prices “went up by more than the tariff rate,” said Anton, who put the increase at about 53% higher than European prices. “When you go too high,” he said, “you’re going to attract imports.” Prices now in the U.S. are only about 7% higher than European prices, he said.

Even the fairly conservative, but free-trade leaning American Enterprise Institute ran this story:

$900,000 per job

That’s the cost to US consumers of Tariff Man’s steel tariffs as calculated by the Peterson Institute for International Economics and reported by the Washington Post “Trump’s steel tariffs cost U.S. consumers $900,000 for every job created, experts say“:

[...] The cost is more than 13 times the typical salary of a steelworker, according to Labor Department data, and it is similar to other economists’ estimates that Trump’s tariffs on washing machines are costing consumers $815,000 per job created.

Trump has [falsely] claimed that other countries are paying the tariff bill, but evidence shows the tariffs are taxes paid by Americans. U.S. companies that buy metals are either absorbing higher costs or passing them along to consumers. General Motors and Ford said Trump’s tariffs have cost them $1 billion each.

[AEI author ponders]: More “winning”? Or more “backfire economics” and costly “economic suicide bombings”?

| improve this answer | |
  • Is that stuff about nail imports (or any similar effect on goods that rely on steel and aluminium) really unexpected? I recall Wilbur Ross already making the connection with Campbell soup (which is packaged in steel). – JJJ Oct 2 '19 at 13:14
  • This only addresses the economic effects and doesn't explore the political ones. Good job though, but kind of a weird locution on AEI. Aren't most conservatives free trade leaning? Criticism from the right on Trump's most populist adventures is very common. – K Dog Oct 2 '19 at 13:37
  • 1
    @JJJ: Ross said that to dismiss any significant effects. He said a $1.99 can of soup will see a price increase of 6/10 of a cent. He called the press reaction to tariffs "hysteria". – SX welcomes ageist gossip Oct 2 '19 at 15:15
  • @Fizz well he made some connection, I didn't say he successfully grasped the full context. And speaking of trade wars, just now reports opening the book on another episode in which the US may put tariffs on the EU and the EU may retaliate. – JJJ Oct 2 '19 at 15:18

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .