Debate over steel tariffs pits producers against consumers
In April, President Donald Trump made good on a campaign promise and ordered the Commerce Department to conduct a “Section 232” review of steel imports. A provision of the Trade Expansion Act of 1962, Section 232 authorizes the government to take action to limit imports of products if they threaten national security. If domestic suppliers of a product—in this case, steel—are forced to close because they can’t compete with cheap imports, it could adversely affect the ability of the military to produce tanks, warships and the like.
Such reviews are uncommon. Since 1980, the Commerce Department has conducted just 14 Section 232 investigations. In 1988, for example, a Section 232 review of imports of antifriction bearings ultimately led to the implementation of “Buy American” restrictions on high-precision bearings for jet engines and guidance systems.
At press time, the results of the steel review had yet to be released, but the president has said he is considering quotas, tariffs or a combination of the two to protect U.S. producers against an influx of cheap foreign steel. Imported steel now represents 26 percent of the market, and U.S. steel mills and foundries are operating at just 71 percent of capacity.
“For too long, China and other nations have been conducting economic warfare against the American steel industry by subsidizing their steel industries, distorting global markets, and dumping excess steel into the United States,” asserted United States Steel Corp. in a statement supporting the review. “The effects have been staggering. Tens of thousands of workers in the American steel industry, the industry’s supply chain, and the communities in which our industry operates have lost their jobs due to unfair and illegal practices by foreign producers.”
Of course, one man’s meat is another man’s poison. U.S. manufacturers of cars, appliances, tractors and other products made of steel want to keep their costs down. They worry that tariffs could cost jobs in their industries. Steel tariffs could also adversely affect unrelated industries if other countries retaliate by imposing tariffs on American exports, such as agricultural products.
“Steel tariffs would actually damage the U.S. economy,” according to a letter published July 12 by the American Action Forum, a Washington-based think tank. “Tariffs would raise costs for manufacturers, reduce employment in manufacturing, and increase prices for consumers.”
The letter is signed by 15 former White House economic advisers, including former Federal Reserve chairmen Ben Bernanke and Alan Greenspan.
By some estimates, U.S. automakers buy 15 percent of all the steel consumed in the U.S. The vast majority of that is domestically sourced. However, if tariffs are levied on steel imports, U.S. steel companies would raise prices as well. Vehicles made outside the country would be unaffected by the tariffs, making domestic vehicles less competitive.
In short, protecting one industry could hurt another. Which would you choose?