Is Trump’s Steel Tariff Good for the American Steel Industry?

steel tariff

The American steel industry helped build the United States and was one of the most dominant industries not just in the country, but in the world, for over a century. But starting in the 1970s, the industry began to decline in the face of global trade and increased competition from foreign exporters, and it has yet to return to its former heyday.

Steel industry executives and their workers are hoping that a new tariff on foreign steel could reverse that course.

President Donald Trump announced the levy of a new 25% tax on steel imports, one of the steepest tariffs in recent memory and comparable to the 8-30% temporary tariff of 2002 placed by President George W. Bush.

To say that the move came as a surprise is an understatement; even most members of the Trump administration itself were caught off-guard. Since the announcement, steel industry execs and those whose companies depend on steel – such as American auto titans Ford and GM – have been scrambling to adapt in the face of uncertainty.

The question is this: will this tariff help or hurt the American steel industry and, by association, the American economy?

Steel industry insiders tend to believe it will be helpful, pointing to the stiff competition faced by imported steel that can be produced for lower costs overseas. United States Steel, the nation’s largest steel manufacturer, predicts it will see higher earnings in 2018 as a direct result of the tariff. The company recently revealed plans to reopen a steel mill in Illinois that could produce 100,000 tons of steel each month.

Most steel labor unions are also pleased by the new policy. Richard L. Trumka, the president of AFL-CIO, stated that the tariffs are “good steps towards fixing predatory practices that hurt workers and cheat companies that produce in the U.S.”

But not everyone is in agreement. Critics in both the Republican and Democratic parties have sounded off against the tariffs, fearful that they could trigger the start of trade wars with trading partners in which the other countries retaliate by levying tariffs of their own against American-made goods.

Indeed, the European Union announced that it plans to impose retaliatory tariffs on a few targeted American imports – namely blue jeans, bourbon, and motorcycles, which combined are worth $3.5 billion.

Critics also argue that tariffs will hurt American companies who depend on affordable steel. The most visible companies that could be affected are Ford and GM, but oil companies, Caterpillar, and Boeing could also suffer harmful consequences because they use a high volume of steel and aluminum (which will incur a 15% tax).

There’s a good chance that the steel tariff will be positive for the steel industry in the short run. But for more guidance on whether or not this move will be beneficial to the steel industry in the long run, it helps to look to the last time a major tariff like this was put into place: the aforementioned 2002 tariff.

In 2002, President Bush implemented a tariff on steel that ranged from 8% to 30%. After intense criticism both at home and abroad – including a $2 billion judgment against the tariff from the World Trade Organization – President Bush rescinded the tariffs 21 months later, short of the original 2005 end date.

Members of the Bush administration now admit that the 2002 tariff was a mistake since it resulted in lost jobs and lost economic output. Current Trump administration members, including Commerce Secretary Wilbur Ross and trade advisor Peter Navarro, believe that no negative impacts will be felt on the economy.

If companies that depend on purchasing large amounts of steel have to scale back production because steel is too expensive to buy in the same amount, thus creating a drop in demand, steel makers will have to consequently scale back production in order to maintain stable prices for fear of flooding the market with steel. Such a move could result in job losses and economic damage in the long term.

Whether or not this scenario comes to fruition remains to be seen. What is clear is that the steel industry will likely move to take advantage of the tariff as long as it lasts by meeting what should be an increased demand for domestic steel, since the price advantage enjoyed by importers will no longer be there.

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