President Trump announced last week that he would be opening an investigation into the “dumping” of market-priced steel in the U.S.
“Dumping” is the word used by people who want you to pay more for steel than the going international price. And the end result of Trump’s probe may be new tariffs that would make steel more expensive, on the pretext of national security.
The argument here is that more expensive steel in the U.S. is good for American steelmakers. It means less competition, more access to profits, thus more employment. America First! Everyone wins, right?
Unfortunately, this is not how the world works. When government meddles in the economy to help one player, it always hurts another. The most relevant victim of steel protection is not Chinese steel, but other American manufacturers.
A lot of U.S. manufacturers, big and small, use steel as an input in their manufacturing process. And these manufacturers employ many people in just the sort of production jobs with good wages that Trump has promised to save or restore.
Everyone from General Motors to Masterlock to Carrier to the makers of oil pipelines needs steel to make the things you buy and use every day. And before they can use the steel to make their products, they have to pay for it first.
There are consequences when the government forces these manufacturers to pay for more expensive steel instead of less expensive steel. Not only do consumers end up paying more for these companies’ products, but the companies also become less profitable. Their businesses either fail to grow as they could, or fail ever to come into existence. That means fewer new jobs and lower wages for the Americans who work for them, and, at the margins, possible elimination of current jobs and companies that go out of business for lack of profitability due to nothing but government policy.
All of this harm could come at no gain to the U.S. steel industry, because the higher costs may drive U.S. automakers to turn instead to aluminum.
What’s more, the universe of American steel-makers is far smaller than the universe of American steel users. It always has been and always will be. This is why steel tariffs, even if they increase the job security of about 140,000 steelworkers nationwide, end up costing far more American jobs in other sectors.
Debates about trade protectionism sometimes assume the only trade off is between American jobs and higher consumer prices. But when it comes to steel, the true tradeoff is more obvious, because it immediately destroys more good-paying jobs than it protects.
In March 2002, President George W. Bush imposed temporary steel tariffs for three years. A study found that by year’s end, 200,000 jobs in steel-consuming industries had been lost as a result — a number greater than all the people employed by the steel industry at that time.
If Trump decides to heap new costs on the backs of manufacturers who consume steel, it will have the same deleterious effects as the various mandates and additional regulatory burdens that President Obama placed on employers when he was president.
The closing of U.S. markets to market-priced steel might win the gratitude of a few thousand steel workers in some politically important states (such as Pennsylvania) for now. But all the benefits will come at great cost to others who also live in politically important states (such as Michigan), who need jobs and have been looking forward to a post-Obama economic recovery.
Both Trump and Republican governments at the state level have made strides already in deregulating industry and making it easier for American companies to compete on a level playing field. We expect to see them do even more in this regard. But Trump will undo that at least part of that work if he continues the failed policy of keeping steel prices artificially high. Steel tariffs will not “make America great again.”
