Tariffs are alleged to benefit the US at the expense of foreigners. In fact, they benefit a small coterie of businesses at the expense of everyone else.
The increased cost of houses due to the President’s lumber tariffs doesn’t just mean fewer houses being sold, it also means those who do buy houses have less money to spend on furnishings, or a new automobile. It doesn’t just mean fewer jobs in construction, it means fewer jobs building couches and cars.
The economic argument for tariffs is, therefore, nonsense. Tariffs neither increase US overall employment, nor raise US wages.
But, the President says, for steel it’s not economics, “It’s a national security issue!” Really? While it’s true the US steel and aluminum industries will benefit from forcing consumers to pay more to steel companies and to aluminum producers, the makers of tanks, airplanes and munitions will experience higher costs. How, exactly, does increasing the cost of the things our military uses to defend us increase national security? It does so only if “national security” is defined as “the profits of the steel industry.” Which, by the way, “posted a combined net income of $869 million in Q4 2017,” while “all the charted steel stocks, except for one, showed increases in average share prices.”
But, the President objects, “What if we can’t produce steel in the future because the US industry disappears?” Well, the US is the world’s 16th largest steel exporter. Nearly 60% of those exports go to Canada and over 30% to Mexico, markets our President is endangering by threatening to torpedo NAFTA. We could stop exports to “protect” domestic supply, but that would increase the “trade deficit”.
In 2017 (through September) we exported 7.6 million and imported 26.9 milliion metric tons of steel, for a difference of -19.2 million. For this to be a national security issue we need to assume a few things. 1) We don’t have spare capacity to handle the shortfall. 2) We do not stop exporting steel. 3) Extreme measures (like WWII scrap drives and diversion of steel to military from consumer production) cannot be taken.
Let’s see. According to the Department of Commerce, in 2017 (through December):
US Steel production “Capacity utilization was estimated at 73.9%.”
”Total U.S. steel production in 2017 was 81.6 million metric tons.” Which includes
8 mmt of exports.
”Total [domestic] steel demand in 2017 amounted to 99.7 million metric tons.”
This leaves us about 18.1 mmt short for the year.
81.6 mmt represents 73.9% of capacity, so another 28.8 mmt could be produced with the remaining 26.1% capacity. Or, comfortably more than we import and without ceasing to export.
Tariffs are taxes. The president is raising them – and threatening trade war.
Here’s 5 minutes of Milton Friedman on this question: