Repercussions of the Trump Steel Tariffs
Again, not an economist or steel industry analyst. Let’s look at the actual costs the 25% tariffs would be to countries that have kindly adapted their steel industries over decades to supply the US with competitively priced steel products. We also estimate how many new US jobs could be made if all foreign steel was replaced. Then we estimate how the price rise of steel could be minimized. A true analysis would examine each of two dozen steel product sectors to see which ones can be manufactured here, or whose manufacturing can be increased.
As far as we know the tariffs would be immediately applied, but they can also be phased in, so that the American steel industry can grow to fill the gaps. The fact that the pre-announced tariffs don’t yet have a time limit is troublesome to American manufacturers, not to mention workers. New investments in factories and training would be required, and won’t be forthcoming without long-term guarantees of favorable industrial advantages.
Our importing suppliers would be most hurt if their exports were entirely replaced by US steel. If they are forced to immerse themselves in the trade war, both by pride and to try to prevent further trade tariffs, their citizens will have to pay more for the goods that their government applies tariffs to. In the last few years, the steel market is overproduced, making it hard for our foreign suppliers to export to alternative countries. I would hope that the presence of clean power would have an effect of where you want your steel made. Canadian steel making is reportedly largely made with clean hydroelectric power. There also is the question of where coal mining for powering steel mills and for mixing in steel can be done with greater safety.
To estimate effects in America, we start with 2017 steel imports of $29.1 billion. Our calculation of the previous post was that the US now produces 70% of its steel and imports 30%. There are 90,000 US steel workers, and 5,000 plus engaged in Iron and metallurgical coal mining. Let’s call that 100,000. To expand to add the 30% to the 70% is an increase by 3/7 = 43%. That won’t happen overnight! Steel employment has been roughly constant for about 15 years. We don’t know how much automation and efficiencies will allow steel to expand without major new investment, and how long it will take. At best, that would eventually expand present steel employment by 43,000 jobs. Trump promised to increase jobs in the rust belt states, and this would fulfill part of that, increasing his re-election chances. On the other hand, it may slow auto production in Michigan and Ohio.
Now let’s examine the economic effect of the 25% tariff. Before US steel can respond, it will cost US consumers 25% of $29.1 billion, or $7.28 billion, or $22.40 each per year.
Some are protecting that US steel will raise its 70% of production by the same 25% amount.
TV viewers have noted that Peter Navarro of UC Irvine has been leading the charge on the tariffs. He is a retired Paul Merage Business School Professor Emeritus, not a conventional academically published economist. He has written ten popular books, made a Netflix movie “Death by China”, and lectured on the threat of China.
Of the $29.1 billion of US imports, only $1 billion, or 3.4%, came from China. In any case, if the US consumers pay the 25% tariff on this, or $250 million, per each of us, it will cost 77 cents. In 2016, US goods exports to China were $116 billion and goods imports were $463 billion. The one billion dollars in steel imports from China were only 0.22% of China’s exports to the US. The 25% tariff, if it came off of their prices, would be only a fourth of that or 0.05% of China’s exports. Countries that we will hurt more than China at greater than 1% of our imports are Canada, Mexico, Germany, Russia, Turkey, Korea, Japan, Taiwan, and Brazil.
While China produces an amazing 49.6% of total 2016 world steel production of 1,630 million tonnes, it also uses 45.0% of finished steel products of 1,515 million tonnes. Let’s remember that China has a population of 1.4 billion people, and has had a 10% growth rate of GDP for over a decade. This is from worldsteel.org
Of steel from Canada, 88% of their steel goes to the United States. About 3/4 of Mexican steel comes to the US.
There are already steel tariffs on states including China. This is why in 2017, the US price for hot-rolled band was $681 per metric ton, 38% higher than the world market price of $491. This also shows that even a 25% tariff will not totally erase the price differential.
This article by Daniel Pearson of the CATO institute on CNN.com on August 2, 2017, says that steel mills adds $36 billion in value with 140,000 workers, larger than the 100,000 in my previous post. And the companies that use steel add a trillion dollars to the economy and employ 6.5 million workers. So steel users add 29 times as much to the economy, and 46 times as many workers. The economic comparison is not really valid, as the case of autos will show. There are many other materials and manufacturing involved in making an auto. Say that there is only a metric ton of steel (2200 pounds) in a car. The difference in price between the imported steel and domestic might be like the price difference above, of only $190 for the contained steel. It does not raise the price of the car by the same 25% as the tariff on steel. It just gives a small cost advantage to foreign made cars.
It also costs more for all of our infrastructure projects. It takes money from the new boost in our military budget for more steel equipment. Makers of the F-35 fighters plan to sell half of them abroad. They are worried what effect the price rise or retaliatory tariffs will be. With his usual belligerence, Trump has also promised to escalate the trade war if other countries counter with their own tariffs. What will the $7.28 billion tariff funds go to? They should go to retraining displaced workers.
Since we already produce 70% of our steel, and most of the imports come from friendly countries, it is not clear why it was justified as needed under national security. Nor, apparently, did it have to be so justified to anybody.
Much more detailed economic analysis is needed. However, the yelps heard in Congress, from state politicians, from economists, from farming, business and industries, and from our foreign friends shows what more analysis will show. And we haven’t even found out what the trade war will bring. The news media are also saying that this preliminary announcement was taken without any real consultation with anyone involved.
For my two cents worth, as a kid I knew about the high auto workers and likewise steel workers salaries. But they were accomplished because of very strong unions. Since then, Republicans and even the most recent Supreme Court ruling have struck down Union powers. That is why there has been no real salary growth in decades. More jobs are great, but those high salaries are not coming back.
