Commentary
The United States on Feb. 10 increased tariffs on steel and aluminum by an additional duty of 25 percent, on top of existing tariffs. The tariffs will go into effect March 12. Reciprocal tariffs against countries that tariff the United States will also likely be imposed in the near future.
“If they charge us, we charge them,” President Donald Trump said on Feb. 10. “If they’re at 25 [percent], we’re at 25 [percent]. If they’re at 10, we’re at 10.”
Finally, the Trump administration is considering additional tariffs on semiconductors, autos, and pharmaceuticals, as well as on the European Union, Canada, and Mexico.
For China, the tariffs will stack atop already existing 25 percent tariffs from Trump’s first term and 10 percent tariffs due to China’s failure to stem the tide of fentanyl flooding the United States. On Feb. 10, China retaliated with tariffs on U.S. exports of coal, liquified natural gas, and farm equipment. However, China’s tariffs are on an estimated $14 billion of U.S. exports, while U.S. tariffs have hit a whopping $525 billion of China’s exports.
On the positive side, the tariffs will mean new jobs in the industries covered. In addition, the tariffs are meant to counter foreign subsidies and tariffs to even the playing field and increase U.S. exports. China’s subsidies flooded the world with cheap metals, for example, driving many international producers out of business or near bankruptcy. China is attempting to monopolize rare earth element processing and use that monopoly as leverage to force other countries, including the United States and Japan, to make concessions.
To the extent that the United States is dependent on China for steel, aluminum, pharmaceuticals, and legacy computer chips, Beijing could attempt to leverage the United States further. This would be especially dangerous during a war, pandemic, or other national emergency.
The costs to consumers associated with tariffs are sometimes overblown by their many detractors. As noted previously in these pages, the inflationary effects of the first Trump administration’s tariffs against China were just 25 basis points, which is 25 cents on a 100-dollar bill. While U.S. consumers will likely pay most of the tariffs, some of the extra cost can be shifted to foreign suppliers seeking to maintain U.S. market share. In the case of the 2018 tariffs on steel, for example, only about half of the tariff was passed onto U.S. steel buyers.
That said, it makes sense to look more closely at the unintended ripple effects of the latest tariffs, especially on U.S. industrial supply chains that rely on foreign metal as a cheap input for their manufactured products. Higher tariffs on steel and aluminum could raise the price of a broad swath of U.S. goods, which is especially troubling if these higher input prices make U.S. manufactured products uncompetitive in global markets.
As a result of Trump’s first steel tariffs in 2018, the steel industry added about 1,000 new jobs, according to professors at Harvard and UC Davis. However, they argue that U.S. job loss in other sectors that use steel and aluminum, including transportation, infrastructure, construction, and defense, was much greater than the jobs won in the steel industry.
By 2019, the professors calculated that these U.S. industries hired 75,000 fewer workers than they would have had no tariffs been imposed. The net U.S. loss from the tariffs was, therefore, 74,000 jobs. While Trump allowed exceptions in many cases to preserve manufacturing jobs during his first term, he ruled out exceptions for the new steel and aluminum tariffs. Thus, the impact of the 2025 tariffs on U.S. manufacturing jobs could be much higher.
After the 2018 tariffs, U.S.-manufactured auto prices increased an estimated 1 percent. However, the proposed blanket tariffs on Canada and Mexico could increase U.S. auto prices by about 10 percent. This could price many U.S. autos out of export markets, making it easier for China to fill that demand. The cost of U.S.-produced energy could also increase due to the extensive use of steel and aluminum in oil, gas, wind, and solar power production.
For everyday U.S. consumers, the cost of cars, major appliances, soft drinks, beer, and canned food would likely increase. The 2018 tariffs added $500 million to the U.S. production of beverages, according to the American Beverage Association. Now, Coca-Cola is considering greater use of more expensive plastic containers instead of aluminum cans.
These price increases will come on top of 3 percent inflation in January compared to one year prior. If inflation increases much more above the Federal Reserve’s 2 percent target, the Fed could again raise interest rates, putting downward pressure on U.S. growth and the stock market.
Countries in addition to China that will be hit by the new tariff on metals are Canada (the biggest steel and aluminum exporter to the United States), Brazil, Mexico, South Korea, and Vietnam, in that order. The national security justification for tariffs tends to fall away the closer a country is to the United States, whether by geography or alliance relations.
However, some of these countries, including Mexico, are allegedly transshipping Chinese metals after reprocessing them into materials such as nails, cables, and wires. These China-derived products could reasonably be targeted by national security tariffs, while other steel and aluminum tariffs on Canada, Mexico, and South Korea are harder to justify.
One-fifth of Canada’s GDP comes from exports to the United States. Uncertainty over new tariffs has decreased investment in the country, made some Canadian companies consider moving south, and could shave this year’s economic growth in Canada from 2.1 percent to 1.8 percent. Moving Canadian jobs south might sound good for the United States, but it comes at the cost of souring relations with a major U.S. ally.
While tariffs will be important to helping the United States decouple from China, reducing the taxes that the regime in Beijing can charge, and reducing the inflow of fentanyl and illegal immigrants from Mexico and Canada, more attention should be paid to the second-order effects of particular tariffs on jobs in the United States, and among our closest allies. Losing 75,000 U.S. manufacturing jobs to get 1,000 steel and aluminum jobs from the 2018 tariffs, for example, sounds like a mistake. The current tariffs on steel and aluminum will be much stronger because they lack exceptions. There must be a better way.
