When the only people pleased with a political move are those who are the direct recipients of its spoils, everyone else is right to be concerned. With President Trump’s new steel and aluminum tariffs set to take effect on March 23rd, business leaders from around the country, across industries, are loudly condemning the surprise move. Even those within his own party disagree with his handling of the matter and its potential to incite an eventual trade war.
“There’s every reason to expect that this will result in a trade war,” said Emily Blanchard, an economist specializing in international trade and trade policy at the Tuck School of Business at Dartmouth in a recent Vox article, “and in a trade war, everybody loses and nobody wins.”
History supports Ms. Blanchard’s comment. According to the U.S. International Trade Commision, when President George W. Bush raised steel tariffs in 2002, U.S. gross domestic product declined by $30.4 million, and the U.S. lost about 200,000 jobs, about 13,000 of which were in raw steel-making.
Another report, this time by the pro-free trade Peterson Institute for International Economics, estimated that Bush’s tariffs cost about $400,000 for every steel-industry job saved. The World Trade Organization eventually ruled that the Bush tariffs were illegal, putting an end to the on-going losses.
The Effect of the Trump Tariffs on American Companies
About one-third of the 100 million tons of steel used each year by American business is imported, while imports account for more than 90% of the 5.5 million tons of aluminum used by U.S. companies. The increased cost of these materials will affect the manufacturing of everything from appliances to beer cans — just ask Whirlpool and Anheuser-Busch. As a result, there will likely be fewer goods made in the U.S. and fewer workers hired to produce them.
Analysts at Moody’s seem to agree, stating that “Protectionist trade policies, including tariffs on raw-material imports, could…exacerbate inflationary pressures, running the risk of tighter margins and possible supply-chain disruptions in the manufacturing sector.”
According to Marketwatch, the industries most at risk are equipment makers and component suppliers in the aerospace and transportation and automotive sectors. These include aluminum parts makers that are suppliers to the aerospace and car sectors, as well as steel parts makers selling to sectors such as railroads, trucking, energy and construction.
And the reality is that the tariffs will hurt small and mid-sized businesses much more than large corporations, which often have provisions in their supply contracts that allow them to pass through rising raw-material costs. Smaller companies operating in highly competitive and fragmented markets without those types of protections — steel and aluminum fabricators like EVS Metal, for instance — are more likely to struggle.
When these companies struggle, the hundreds of thousands of American workers they employ will end up struggling, too. Cash flow will shrink as companies attempt to increase working capital to counteract more expensive inventory. They will be forced to raise prices, making it harder to compete in export markets, and some American companies will ultimately move part of their business overseas — costing American workers their jobs.
We have plenty more to say about President Trump’s steel and aluminum tariffs. Come back next week for part two on the subject.
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