Clark Packard and Alfredo Carrillo Obregon review the long, sordid history of protectionism for the U.S. steel industry. Three slices:
Over the last 60 years, the federal government has showered the domestic steel industry with every conceivable form of protection from import competition, from tariffs, quotas, and trade remedies to voluntary export restraints, Buy American procurement preferences, and restrictions on trade and foreign investment under the guise of national security. These policies have further entrenched the steel industry as a protected constituency that wields significant influence over trade policy, which in turn has led to more—and increasingly complex—schemes for further shielding the industry from imports.
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And yet for all the protection that the government has conferred to the industry and all its costs, the steel industry’s prospects show remarkably little improvement: Major producers are struggling to innovate and compete, output and capacity utilization have stagnated, employment continues its long-term decline, and prices are among the highest in the world. Altogether, the history of steel protectionism in the United States is yet another case study in the failures of protectionism to reinvigorate declining industries and the consequences of pursuing these policies.
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Yet the domestic steel industry continues to struggle. Capacity utilization and production have basically been flat over the last decade, and total capacity has declined despite its recent uptick. Major players have ceased to be innovative, are in bad financial shape, and their business models are less suited for the realities of the modern-day steel industry and US steel consumption.223 Meanwhile, the industry continuously advocates for protectionism. Even if more protectionist measures are added and domestic steel production increases, such increases are unlikely to be decisive or sustainable, and employment in steel manufacturing is unlikely to return in large numbers. The last seven-plus years of national security protectionism, in particular, have shown this. Instead, the industry has become even more dependent on government-sanctioned protectionism for its profitability.
While steel protectionism may be a wise short-term strategy, it is a pyrrhic victory. Today’s unsavory mixture of protectionist steel measures harms the broader economy by artificially inflating manufacturers’ input costs and, ultimately, consumers’. Not only that, protectionism helps deprive domestic steel producers of sufficient foreign competition to foster more innovation. US policymakers intent on promoting more domestic manufacturing should look at ways to lower the price of a key input such as steel by promoting freer trade.
Here’s the abstract of a new paper by James Lake and Ding Liu on steel tariffs: (HT Adam Millsap)
President George W. Bush imposed safeguard tariffs on steel in early 2002. Using US input-output tables and a generalized difference-in-difference methodology, we analyze the local labor market employment effects of these tariffs depending on the local labor market’s reliance on steel as an input and as part of local production. The tariffs did not boost local steel employment but substantially depressed local employment in steel-consuming industries for many years after Bush removed them. The tariffs also led to a persistent exit of steel-intensive manufacturing establishments, suggesting a role for plant-level fixed entry costs in translating the temporary shock into persistent outcomes.
Also weighing in on steel tariffs is my intrepid Mercatus Center colleague, Veronique de Rugy.
The administration’s predictions of “catastrophic consequences” for the broader U.S. economy are also silly. As we explain in the brief, the tariffs’ relatively modest fiscal effects explain why several studies of Trump’s spring 2025 tariff announcements found that contemporaneous movements in Treasury markets were driven mainly by economy-wide and tactical factors, not bond investors’ expectations of transformative tariff revenues. The government’s bizarre claim that nixing the tariffs would force Washington to “pay back” foreign investments promised as part of Trump’s trade deals—investments that aren’t assured, haven’t even started, and would create no government obligations when/if they do—is ludicrous on its face. And readers of Capitolism surely know by now that economic analyses and business surveys consistently show that invalidating the tariffs—and eliminating the massive uncertainty unique to the broad and vague IEEPA—would modestly help, not majorly harm, the U.S. economy. For these and other reasons, tariff pauses and adverse court decisions have been immediately followed by stock market gains, while new tariffs are typically accompanied by modest selloffs. (The U.S. economy is huge, of course, so we should never expect massive stock market moves either way.)
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Maybe this risk is low, but the stakes here—on the law, the economics, and our system of constitutional governance—are big enough that we didn’t want to take any chances. As we discuss in the brief, for example, Trump’s IEEPA tariffs jettison the long-established system of U.S. tariff-setting—formal cooperation between the executive and Congress that’s been used more than 200 times to create a stable and predictable baseline tariff code (the “Harmonized Tariff System of the United States”)—for a new system in which a single person can declare an “emergency” for any reason and then completely rewrite the entire tariff code, covering thousands of products and hundreds of countries, however and whenever he wants. Presidents do have the power to apply duties on top of these baseline tariffs for certain goods or places, but they’ve never just scrapped the entire base itself (which includes all the trade agreements previous presidents and Congresses have codified into U.S. law). Yet that’s exactly what Trump is doing—repeatedly. And it’s just what he promised he’d do on the campaign trail last year.
Paul Schwennesen has a legitimate beef with protectionism. A slice:
Politicians often say they “love” the rancher, the farmer, the working man. But love, in economics as in life, is best revealed by respectful restraint. Don’t interfere. Don’t pretend to know better. Don’t weaponize one group against another in the name of populist sympathy. Ronald Reagan, the cowboy president, said the nine most terrifying words one could hear was “I’m from the government and I’m here to help.” As the cattle industry turns its back on Trump’s meddling, he is about to learn the political perils of a command economy as well. The best thing Washington could do for the beef industry is to stop helping it.
Maybe Congress isn’t entirely comatose. The Senate offered a welcome demonstration of independent thought late Tuesday with a 52-48 vote to terminate President Trump’s 50% tariff on goods from Brazil.
Five Republicans—Susan Collins (Maine), Lisa Murkowski (Alaska), Thom Tillis (North Carolina), Mitch McConnell and Rand Paul (Kentucky)—voted with Democrats. The measure would end the national emergency declaration that Mr. Trump cited to justify his Brazil tariffs under the 1977 International Emergency Economic Powers Act (IEEPA).
The President has used that law to impose tariffs willy-nilly, claiming the U.S. trade deficit, fentanyl trafficking, or anything else he can conjure is a “national emergency.” In July Mr. Trump raised his 10% baseline tariff to 50% on Brazil as retaliation for the leftwing government’s prosecution of former center-right president Jair Bolsonaro for allegedly plotting a coup to overturn the 2022 election.
Jeff Luse reports on yet another industry that Trump is socializing.
