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The Effects of the U.S. Tariff on Steel

by Caroline Trammell and Cade Hornack

Last week President Trump announced a new 25% tariff on steel imports. The intention of the tax is to help the U.S. manufactures recover from the lasting effects on steel prices from the 2008 recession. However, this tariff will most likely hurt U.S. consumers and producers, including those in the car and machinery industries.

This graph shows how the price of steel imports spiked during the recession and has not come back to the previously lowest levels since. Before the recession, the U.S. produced steel on par with its rivals in Europe and China. While the U.S. struggled to recover, other countries such as India and Korea increased their production. The U.S. has fallen behind the steel production levels of other countries.

This graph shows how the price of manufacturing steel increased during the 2000s and has never fully recovered since the recession.

The new tariff is intended to respond to the declining U.S. steel production. Commerce Secretary Wilbur Ross has pressured Trump impose the tax on steel imports to product American industry from foreign competition. Ross believes the tariff will cut competition and allow U.S. steel producers to flourish. However, these tariffs will likely do nothing more than increase prices of steel goods for the American consumer. The problem is a result of American consumer interests. Consumers in the U.S. are purchasing foreign-made steel goods rather than ones made in their own country. The production and consumption of steel occurs in these other nations while the U.S. is importing more.

The tariff is designed to decrease this trade deficit  by allowing U.S. steel manufacturers to produce at competitive rates. However, seeing that this is a consumer problem it is very possible that the tariff will only increase domestic prices.

19 thoughts on “The Effects of the U.S. Tariff on Steel

  1. radcliffec20

    This is super interesting. I wonder how the growing popularity of Teslas will affect American consumers demand for the domestic car industry and whether or not the tariff will interfere with this relationship. Thanks for sharing.

    1. the prof

      Sales of Tesla appear to be declining – growing hype is not the same thing. Domestic car production is strong though not at an all-time high. NAFTA production is at a high, US exports in both value terms https://fred.stlouisfed.org/series/B641RC1Q027SBEA and in volume https://fred.stlouisfed.org/series/AUESA . Now if steel tariffs and reprisals with the EU go into effect, it could hurt the exports of BMW, which ships 70% of the output of its South Carolina plant to other countries.

  2. Jimmie Johnson III

    I think this is a very interesting and relevant post. It is great to see Trump being consistent and trying to put American industries first. It will be interesting how the consumers react to increased pricing, will people continue to buy the increasingly expensive item or find something different to act as an alternative? Hopefully the natural course of supply and demand will take place and an equilibrium can be found.

  3. Lauren Fredericks

    I love that your post is so relevant to what is in the news right now. Claiming "America first" and implementing a mercantilist-style system in which we heavily tax imports in this day and age frankly seems rather backwards. This is especially true when seen through the macroeconomic context of gains from specialization and free trade. Imposing tariffs because we are struggling with steel production seems like a bandaid fix that may make American steel producers temporarily happy but will ultimately do more harm than good. Thanks for sharing!

  4. Katie Paton

    It is interesting that there was such a high spike in steel imports during the recession. I wonder if the Great Depression had a similar spike in steel imports. We see the Trump administration honoring NAFTA as there are not tariffs for imports from Canada or Mexico. I wonder if Canada and Mexico are having similar problems with high levels of steel imports.

  5. clintong20

    This is awesome! I wonder if people will seek alternative routes despite the boost in Trump's advocacy for American industries. I definitely see the evidence of your article in the news now!

  6. longa20

    Interseting to note how imposing the tariff will hurt the consumers. However, it will likely help the U.S. steel manufacturers grow as they will now be competitive. This is in interesting paradox as would you rather have U.S. steel manufacturers grow or help out the consumers.

  7. spencerc20

    This is a really interesting post. As Trump has continually pushed an "America First" economic policy, people have been hopeful that it will help American manufacturing, but this seems to imply that it will only hurt us further. Maybe this tariff won't be long lasting when they realize the negative effects it's going to have on consumers.

  8. warej20

    You guys did a great job connecting your post to a relevant issue in today’s world. I find the steel tariff very interesting. I agree that the tariff will assist U.S steel manufacturers against foreign competition and that it will likely result in increased domestic steel prices. I am curious to see how this tariff will affect other U.S industries especially in fields where steel is needed.

  9. Chris Surran

    Thanks for an extremely relevant post. Since we do not know the details of the steel tariff, it is hard to know how it will affect American consumers. It will be interesting to see if the tariff will include loopholes for Canada, Mexico, and Europe. Also, there are also concerns that the tariff will initiate a trade war.

    1. Cade Hornak

      I have also heard concerns of a trade war with China due to the first of Trump's tariffs on China. He claims this tariff will be the first of many. However, since the US and China are very dependent on each other economically, I do not see a scenario in which a trade war occurs, especially considering the tariff is only $60 billion. If it were $600 billion, then I would be very concerned, but that amount represents a marginal impact on China and merely reprimands them for disrupting the entire global steel industry by selling at a loss.

  10. the prof

    Will this "put America first"?

    IF steel imports are in line with comparative advantage (import low-quality commodity steel, make high value-added, high skilled-content steel here) ...

    THEN this will hurt the US economy. Trump is putting whoever whispered in his ear last first, and putting the American economy not first but last.

    Note there are far more jobs in steel using industries (automotive and especially construction) than in steel, and there is little excess capacity in this capital-intensive industry so we won't see steel jobs. A new steel mill is probably a 5+ year project and costs $$$ billions. Not the sort of decision that gets made on the basis of a series of tweets that may soon be reversed, and because it's capital intensive, not many jobs.

    1. alisonw20

      Implementing a tariff on steel is a good idea in theory and may work over time. However, I don't think that it will initially do much to change the amount of steel that is being imported. As of right now, the manufactures that are importing foreign steel will most likely continue to do so because they have been for the past 10 years or so. Until it becomes significantly cheaper to purchase domestic steel, manufactures will continue to import steel. It will be intriguing to see if this tariff drives up the consumption of domestic steel.

  11. moraifa19

    You argue against Trump's 25 % tariff increase on steel imports to help US manufacturers and solve the declining steel production. I agree this is a drastic measure, but some argue that this increased tariff will bring the jobs back home, employing our unskilled labor force whose jobs are lost to those abroad.

  12. bearupk20

    It is an interesting choice by Trump to impose this tariff, but I wonder if once the domestic steel manufactures use this tariff to their advantage to become more competitive with foreign suppliers if Trump might get rid of the tariff with the hope that American steel manufacturers would be able to compete on a more global level, which would drastically change the domestic steel market. Of course I don't know if this is plausible explanation, but it will nonetheless be interesting to see how it plays out over time.

  13. myerse20

    I'm sure that my political bias is getting in the way here, but passing this tariff just doesn't make sense to me. I see that you said that the policy is intended to decrease the trade deficit, but I completely agree that (at least from y'all's explanation of the policy and how it is expected to affect markets) we won't see this happening. I would like to be hopeful that the tariff benefits the US economy (as well as other nation's economies), but I am doubtful.

  14. legarthb20

    This is great! I wonder if it will continue going this way in the future. I don't really see the point of the tariff (personal opinion) but I wonder if they will take it back in the future. I don't see how the market for steel will decrease or how this will benefit us moving forward. But the article is well written good job!

  15. laytonr20

    What I would like to know most is the exact reason for the decline in American steel manufacturing. Is the decrease a direct result of the international competition, and price undercutting by foreign companies, or is it a natural decrease based on America's ability to actually produce steel: a lack of raw materials or something. This would be more a question of the industry rather than an economist, but Ross must believe the cause is the competition if he believes these tariffs will successfully revitalize America's steel manufacturing.

  16. hallk20

    The international backlash on these tariffs has been extreme. It will be really interesting to follow this and watch to see if these tariffs 1.) help our economy here at home or 2.) impact our own exports as countries take offense to these tariffs.

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