It appears President Donald Trump hopes to do a massive increase in tariffs on steel and aluminum. Bloomberg reports the President is pondering three protectionist plans on his desk, and prefers the one he believes will boost American steel profits.
Trump has said he wants to slap a global tariff of 24 percent on steel imports, the most severe of three options presented to him in a report in January. He is also considering as much as a 10 percent duty on all aluminum entering the U.S., which would be more than 2.5 percentage points higher than the harshest of Commerce’s recommendations.
It isn’t surprising the President is considering this, after all the alleged 5G sort of nationalization plan would require whoever constructs the infrastructure to use American products, instead of foreign materials. Trump sees this as a way to increase national security (somehow) something Commerce Secretary Wilbur Ross swore was an issue via Section 232 of the Trade Expansion Act of 1962. Ross’ report admitted there is no real definition of “national security” in Section 232, but the government still needed to prop up the steel economy (emphasis mine).
U.S. steel producers would be unable to survive purely on defense or critical infrastructure steel needs. In the steel industry, it is commercial and industrial customer sales that generate the relatively steady production needed for manufacturing efficiency, and the revenue volume needed to sustain the business. Sales for critical infrastructure and defense applications are often less predictable, cyclical, and limited in volume.
Steel manufacturers operating in the United States, however, have seen their commercial and industrial business steadily eroded by a growing influx of lower- priced imported product from countries where steel manufacturing often is subsidized, directly or indirectly.
So let me get this straight: the U.S. has to start subsidizing the steel industry because other countries are doing it. This logic is so antithetical to what an actual free market means, letting consumers decide which products they want to buy, which probably means the cheapest product out there. If a foreign company is offering goods at a lower price than a U.S. company, then the buyer will go for the lower price. A tax on foreign steel (yes, tariffs are taxes) will force buyers to pay more on steel and aluminum, especially if U.S. steel producers don’t lower their prices. One thing National Review’s Jibran Khan noted is how the expected tariff will hurt businesses, more than help (emphasis mine).
The move has sparked backlash from governments and businessmen across the world, including many American allies. The president of South Korea, Moon Jae-in, threatens to complain to the World Trade Commission if the Trump administration imposes steel protectionism, and he has suggested expanding exports to Russia and Southeast Asia given the uncertainty of the U.S. market. Earlier this week the news emerged that the European Union is ready to respond to the Trump plan with tariffs on American products. It ought to embarrass Republicans that a GOP administration is proving less friendly to international trade than are some formerly Communist states.
So, not only is Trump endorsing the idea of endless military war, by staying in Syria and Iraq for an indeterminate amount of time, he’s also endorsing the idea of a trade war. The price of steel is already pretty high with TradingEconomics.com noting it’s currently over $622 per million tonne. Part of this could be because China decided to slash its steel capacity last August, which also drove up prices. The increased tariffs will drive these prices up even further, which won’t help anyone, especially the consumer.
The proposed aluminum tariffs would also hit American pocketbooks extremely hard. Shelley Goldberg writes at Bloomberg almost the entire U.S. economy is at risk, should aluminum prices go up.
The amount of aluminum consumed by the U.S. military is insignificant in the scope of the total. Most of the metal imported by the U.S. comes from nations such as China and Canada, and typically serves civilian uses for automobiles, packing, roofing, road signs and consumer durables, none of which implicate national security.
This…is problematic to say the least. I’m not interested in paying extra for a 12-pack of Diet Dr Pepper, nor do I think the average American will want to pay more for foil or a vehicle. The price hikes would wipe out any pay raise due to the tax cuts passed last year. It’s just not a good idea to hike prices, which is what tariffs would do, after making sure Americans take more home than they were, which is probably the most frustrating part of the entire deal. The Trump Administration has already taken steps to help businesses by lowering the corporate tax to 25.7%. The idea the state needs to now level the playing field anymore by raising taxes (yes, tariffs are taxes) won’t actually solve the problem, and will probably end up hurting more than the admin wants to admit.