TPT May 2018

G LOBA L MARKE T P L AC E

G LOBA L MARKE T P L AC E

• Who wins and who loses? The big winners are the US steel and aluminium industries, which have lobbied for years for this kind of aggressive government action. The most immediate losers are the industries that rely on steel and aluminium as an input and will face higher prices. That includes some of the nation’s biggest industries: the automobile sector; aerospace; heavy equipment; and construction. In short, the chassis of a Ford, the body of a Caterpillar bulldozer, the wings of a Boeing aircraft, and the steel girders inside a New York skyscraper are all about to get more expensive. The industries that use steel and aluminium are considerably larger as a share of the US economy than are steel and aluminium producers. By one estimate, from Lydia Cox of Harvard and Kadee Russ of the University of California (Davis), steel-using industries employ 80 times as many people as steel-producing industries. • What does this mean for consumers? There is not much reason to expect enormous price increases for most goods. The US imports only about one-third of its steel. So prices will go up by only a fraction of the tariff amount. (Aluminium is more heavily dependent on imports, with only 10 per cent made domestically.) But consumers don’t generally buy raw steel and aluminium. They buy goods in which those raw materials are but one input. A car includes not just steel and aluminium but also plastics and textiles and glass, the computer circuitry that controls it all, and the design know-how and assemblage work – along with a profit margin for both the automaker and the dealer. So, for any given product it is hard to predict whether producers will eat the cost of more expensive metals, pass the cost on in the form of higher prices, or both. • What about the effect on the US economy? The economy is relatively strong at the moment, and has been historically resilient to most disruptions. [The tariffs] may create some jobs in domestic metals-producing industries, cost some jobs in fields where steel and aluminium are inputs, and push consumer prices a bit higher. The large and dynamic US economy can handle it. The risk comes from the potential ripple effects. Affected countries may well retaliate by ordering tariffs on American goods, and they could carefully target goods to cause economic or political pain. American exporters should be nervous. There are few winners in an all-out trade war like the one that enveloped the world economy in the 1930s. › As a coda, Mr Irwin sounded a particular cautionary note on the Trump administration’s invocation of national security concerns. “This could set a precedent,” he wrote,

Steel and aluminium The US president embraces stiff tariffs that would hurt American businesses and imperil export-dependent American industries On 2 March, one day after his surprise announcement that he would soon impose US tariffs of 25 per cent on imported steel and 10 per cent on imported aluminium, President Donald Trump declared in an early morning Twitter post that trade wars “are good, and easy to win.” The assertion may take one’s breath away; but his conviction that “winning” on trade is critical to the US economy is a remarkably consistent theme with the otherwise vacillating and volatile Mr Trump. His views on trade, consistent or not, are sharply at variance with those of leading economists and analysts, for whom even the prospect of a trade war is seen as threatening to the economic expansion now underway worldwide. A sharp overnight plunge in the stock market was demonstration enough that the threat is real. It is Mr Trump’s belief that other countries’ trade practices endanger American national security by undermining domestic production, with China a major focus of his resentment. Ironically, although China is the world’s largest steel exporter it is only the 11 th -largest source to the US, accounting for just 2 per cent of total US steel imports last year. Thus China will not suffer from Mr Trump’s tariffs. But an American company bringing in $100,000 worth of steel from Canada (a close ally and the top supplier of steel to the US last year) would have to pay a $25,000 levy to Washington, effectively raising the price to the end-user. ‘R eal risks ’ Neil Irwin – author of The Alchemists: Three Central Bankers and a World on Fire , about the efforts of the world’s central banks to combat the global financial crisis – is a senior economics correspondent for the New York Times. A strong critic of Mr Trump on trade, Mr Irwin says that the crux of the tariff initiative is not slightly higher prices for two US-produced metals; it is “that an entire system of global trade, which the US helped build, might be undermined.” Here, edited and abbreviated, are selected highlights of Mr Irwin’s Times article “The Real Risks of Trump’s Steel and Aluminum Tariffs” (1 March): • What is the rationale for the tariffs? American steel and aluminium companies have long complained of unfair practices by overseas competitors, especially Chinese state subsidies that encourage production. This can flood the global marketplace with metals, depress prices, and make American production less economical than it otherwise would be. The Trump administration argument is that, with domestic metals production undermined, the US is left vulnerable in the event of conflict that disrupts trade flows.

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MAY 2018