Word of the Day — Tariffs

Nearly everyone and his or her brother and sister have come out against Trump’s tariffs on steel and aluminum this week! 25 percent on steel and 10 percent on aluminum.

I have read some things I didn’t know about tariffs on steel and aluminum. Most of these things came from an article in The Conversation titled “George W. Bush tried steel tariffs. It didn’t work” by William Hauk, Associate Professor of Economics at one of my alma maters, the University of South Carolina in Columbia.

Here are some facts I didn’t know

Trade protection transfers money from a good’s consumers to its producers. I talked about this in February in my post, “Trump’s Trade and Infrastructure Weaknesses“. But what I didn’t know is it really matters who the consumers of the good being tariffed are.

If we mean consumers like you and I, a tariff might have little impact because there are so many of us our individual shares of the tariffs might be quite low.

On the other hand, if the consumers are giant auto companies and the construction industry, the concentration of wealth within these two sectors is so great, they have far more lobbying power in Congress than we or the steel industry do.

Thus, when George W. Bush imposed tariffs of up to 30% on imports of steel to the US. back in 2002 the auto and construction industries convinced the National Association of Manufacturers to come out against the tariffs. Lawsuits were threatened.

By the time President Bush backed off of those tariffs in 2003, 200,000 employees of other US manufacturing companies had lost their jobs, while the entire steel industry consisted of 197,00 workers. All that resulted was a huge displacement of American workers from one location to another, a topic I’ll cover in my next post.

So now it’s even worse. According to the  Council on Foreign Relations, there are roughly 140,000 people employed in the steel industry. 

A TV news commentator I watched this weekend pointed to technological advances as the cause for the 25% loss of steel industry jobs over the past 15 years. This has a ring of truth to it. Others have blamed the steel industry itself for using its profits on dividend payouts and buyouts rather than making use of its excess capacity to output more steel.

Whatever the cause, it is likely that President Trump’s steel tariffs will meet an even worse fate than President Bush’s and perhaps generate far more enmity among our trade partners—causing them to retaliate by slapping export taxes on goods we sell them.

This is particularly true because of President Trump’s willingness to let Canada off the hook for steel tariffs. According to Professor Hauk, we now import a fifth of our steel now from Canada.

And, I might add, Canada provides the US with 63% of the aluminum we use. Our own aluminum industry is largely defunct with only a handful of plants in Washington state, Kentucky, and New York state remaining open.

A reason I hadn’t heard before

So why would the President impose a one-sided deal that is so likely to backfire and cause a huge trade war along with even more dis-locataion of workers within the other manufacturing industries within our economy?

Lots of news commentators have been claiming it is because Donald Trump wants to create any distraction he can from the current investigations of collusion with Russia and other crimes by his campaign team and possibly himself.

Is President Trump that desperate and ignorant of economics? Perhaps not. 

Professor Hauk suggests that Trump’s tariffs were imposed because of steel’s “political advantages”.

Steel producers are mostly located in Pennsylvania and Ohio. Like Florida, with its heavy protective tariffs on sugar, these states are the most important “swing states” in our Presidential elections.

Given President Trump’s campaigning this weekend in Pennsylvania for a Republican candidate in the 2018 Congressional elections where Trump mostly bragged about himself, that idea doesn’t seem quite so far fetched to me.

After all Trump beat Clinton in the 2016 Presidential election in Pennsylvania by only 44,294 votes and in Ohio by 446,841 votes. Will Trump’s tariffs enable him to swing the vote his way again in 2020?