- President Donald Trump announced new tariffs on imports of steel and aluminium on Thursday.
- Trump joins a long list of presidents who have attempted to use trade restrictions to boost US domestic metal producers.
- Studies show that these types of moves typically result in a small boost for the industries and serious negative consequences for the broader US economy.
President Donald Trump on Thursday announced that the US will impose new trade restrictions on imports of steel and aluminium in a bid to protect domestic metal producers.
In a meeting with industry executives at the White House, Trump said the new restrictions will come in the form of a broad 25% tariff, or tax on imports, on steel and a 10% tariff on aluminium. He said the restrictions would extend indefinitely.
Trump is not the first president to try and revive the US steel industry, but the massive new tariffs could lead to even more severe consequences than previous trade battles.
What’s a tariff? They have a history in past trade fights
Presidents dating back to Lyndon Johnson have attempted to curtail the import of foreign steel and boost the US steel industry, using a variety of restrictions.
Most presidents, including Johnson, Richard Nixon, and Ronald Reagan, have used quotas – limits on the amount of steel that can be imported in a given timeframe – to help bolster the US steel industry. For instance, Johnson set a limit for steel imports of 5.75 million tons in 1969.
President Jimmy Carter attempted to curtail steel imports by putting a floor on the price of steel imported into the US. While not technically a tariff, the move essentially forced foreign steel producers to maintain their prices at a certain level and not undercut US producers.
More recent presidents have also attempted to bolster the steel industry as well. President Barack Obama imposed high tariffs on very specific types of steel used in some automobiles in an effort to curb Chinese imports.
Perhaps the most analogous case to Trump’s broader tariff comes from President George W. Bush in 2002. Bush attempted to institute tariffs on steel products, ranging from 8% to 30%. After just over a year, Bush was forced to rescind the tariffs due to international backlash and negative economic consequences.
Aluminium restrictions have a less-storied history, as the surge in cheaper foreign imports is a more recent trend. According to the Aluminium Association, a trade and lobbying group, the percentage of aluminium foil consumed in America made by US producers dropped from 84% in 2004 to 69% in 2016. At the same time, Chinese-produced foil went from a 0% market share in 2004 to 22% in 2016.
The recent surge prompted action from aluminium producers to request trade protections.
What it means for Americans
According to most studies of these various actions throughout modern history, the US economy and steel industry has experienced little, if any, positive booth as a result. In fact, many studies show that recent steel restrictions hurt the economy.
Carter’s floor on prices did little to stem the steel industry’s tanking, and it led to conflicts with both Japan and European nations. Quotas such as those instituted by Johnson and Reagan had little, if any, benefit for the steel industry, as the percentage of imported vs. domestic steel steadily increased.
On a macroeconomic level, studies show that recent attempts by politicians to help the steel industry may have ended up hurting the US economy more than it helped.
By imposing new taxes on metal imports, the price of steel and aluminium will almost certainly increase. This will cause costs for other industries that rely on the two raw goods to jump.
For instance, the beer industry warned before Trump’s announcement that a 10% on aluminium would cost beer and beverage producers $US256.3 million and could lead to price increases for consumers.
A downstream labour market impact could also result. Estimates on the job losses due to the Bush tariff in industries that use steel as an import range from 26,000 to 200,000.Additionally, studies of the steel protectionism in the 1970s found that American consumers paid an additional $US290,000 in increased downstream costs to save a single job.