Steel Tariffs: An Utterly Unsurprising Cost/Benefit Calculation

The Trump administration imposed tariffs on imported steel back in March 2018, using the implausible excuse that it was necessary for national security(for some countries, the tariffs were later changed to import quotas with similar effect). The results are utterly unsurprising: profits for US steel companies have risen and some jobs for US steelworkers have been gained, but at an exorbitant cost for US consumers and for other US workers. Gary Clyde Hufbauer and Euijin Jung lay it out in "Steel Profits Gain, but Steel Users Pay, under Trump’s Protectionism" (December 20, 2018, Peterson Institute for International Economics).

A protected industry benefits from less import competition. It uses that protection to raise prices for consumers and to earn higher profits. It should be emphasized that these higher price and profits are not an unexpected outcome--they are the mechanism through which import tariffs help domestic firms. To put it another way, if tariffs didn't help domestic companies charge more and raise their profits, there would be no point to having such tariffs in the first place.

Hufbauer and Jung write:

"Calculations show that Trump’s tariffs raise the price of steel products by nearly 9 percent. Higher steel prices will raise the pre-tax earnings of steel firms by $2.4 billion in 2018. But they will also push up costs for steel users by $5.6 billion. Yes, these actions create 8,700 jobs in the US steel industry. Yet for each new job, steel firms will earn $270,000 of additional pre-tax profits. And steel users will pay an extra $650,000 for each job created."

Many studies over the years find that trade protectionism saves jobs, but at a high cost to consumers (For example, here's an example of how the Obama administration tariffs on imported tires cost consumers about $900,000 per job saved in that industry.) The underlying issue is that consumers aren't just paying higher prices to save US jobs--if that was the tradeoff, we could argue over whether it might be worth doing. But the higher prices are part of higher revenue for steel companies, which maybe used for purposes ranging from robots and automation to research and development, or higher profits for shareholders and higher bonuses for managers.

1 2
View single page >> |

Disclosure: None.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.