While total imports compose less than 14% of the U.S. economy, steel imports make up 25% of U.S. steel consumption. The U.S. imports roughly half its aluminum consumption. The new 50% tariff will have negative economic effects far larger than the original 25% tariffs in 2018. Those had carve-outs for Canada and Mexico, the largest suppliers of steel and aluminum to the U.S. Brazil and Korea were also exempt. The 2018 tariffs didn’t cover derivative products that could be imported as substitutes for raw steel and aluminum. This time around prices for consumer goods, such as lawn furniture at Walmart, and producer goods, such as robots in manufacturing plants, will rise as tariffs are imposed on their steel and aluminum content.
The International Trade Commission found that the 2018 tariffs raised the domestic prices of steel and aluminum by 2.4% and 1.6%, respectively. Yet even these modest increases disrupted supply chains and inflicted real damage. From the third quarter of 2009 (the end of the great recession) through 2017, U.S. manufacturing output rose at an average quarterly rate of 0.9%. But from the first quarter of 2018, when Mr. Trump first imposed tariffs, through the end of 2019 (just before the pandemic), manufacturing output fell on average by 0.06% per quarter. Unsurprisingly, while employment in steel and aluminum production grew by a piddling 2,300 jobs in 2018-19, employment in manufacturing industries using steel and aluminum in their production process fell by an estimated 75,000 jobs. The job losses from the new tariffs will be many times greater. The tax on the steel and aluminum content of all imports will affect almost every U.S. trading partner, making it harder to reach reciprocal trade agreements and avoid retaliation.
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