On Thursday, President Trump signaled his desire for tariffs on steel and aluminum, tweeting out that America’s domestic industries were being outflanked by foreign production:
This is untrue. And this is bad policy.
1. The American Steel Industry Is Doing Well. In 2016, the steel industry boomed thanks to dramatically increased car sales; Nucor, the nation’s leading steel manufacturer, did $16 billion in sales that year. And last year, it’s net earnings increased 65%. The average salary at the company is $80,000; most job loss has occurred thanks to technological advances, not thanks to foreign trade. Nucor’s stock price in 2000 was around $12; today it’s $65. US Steel boomed in 2017; in Q4 of 2016, net earnings were $47 million, but by Q4 of 2017, net earnings were $136 million. Steel Dynamics showed an operating income of $1.1 billion. American production of raw steel has been more or less steady since approximately 1980.
As CATO Institute trade lawyer Scott Lincicome points out, U.S. producers control 70% of the steel market, U.S. steel production rose 5% last year, there are already 160 duties on steel imports, China ranks 11th in steel importation into the United States, we have no defense need for tariffs to preserve the steel industry.
2. Tariffs Cost Jobs In Other Industries. Most importantly, employees of steel-consuming companies in the United States outnumber employees of the steel industry 45:1, meaning that as prices rise, so do the costs for the businesses that employ those people.
Meanwhile, the market is reacting to news of Trump’s trade talk with a spike in aluminum premiums — and companies like Anheiser Busch are reacting. Their CFO stated today, “About 2 million jobs depend on America’s beer industry. We urge the department of commerce and U.S. President Trump to consider the impact of trade restriction tariffs.” Beer cans are, of course, made of aluminum.
3. Past Steel Tariffs Have Been Counterproductive. The Bush steel tariffs, which lasted just 21 months, cost an approximated 200,000 jobs; for every steel job created, American consumers paid an additional $200,000-$2.3 million. And past rounds of steel tariffs have not revitalized the steel industry that existed in the 1970s in the United States.
In other words, Trump’s talking nonsense on trade. That’s no shock, since Trump’s philosophy on trade has been completely ignorant for decades. But it could lead to a round of increased tariffs worldwide on American goods in retaliation for our own tariffs — and that’s bad news for Trump’s broader economic agenda, given that the stock market took a serious hit in February, GDP growth in Q4 2017 was revised down to 2.5%, and Q1 looks slower than that. Now is not the time to be putting the brakes on the economy for the sake of subsidies to industries that remind the president of blue collar glory days of yore.