Introduction
On March 8th, President Trump signed a 25% tariff on steel imported into the United States. The announcement came in the aftermath of a Section 232 Investigation by the Department of Commerce which investigated the impact of imports on national security. The findings of the report suggest that the President institute tariffs on both steel and aluminum to protect American industry. The signing took place at a small ceremony in the White House, featuring workers from steel production plants -- those who the President, and the tariff’s supporters, claim will benefit from this policy. Conspicuously absent from the ceremony were workers from steel intensive industries - a group that comprises hundreds of thousands of jobs more than that of the US economy than steel producers.
US allies and trading partners responded strongly to the tariff announcement. Director of the International Monetary Fund (IMF) Christine Lagarde said she feared escalation to a trade war and French President Emmanuel Macron called the tariff policy “economic nationalism” . Yet lost in the whirlwind of a disrupted and disturbed geopolitical stage is the impact these tariffs will have on American workers. They are very much a follow-through on Trump’s part -- a reflection of his long-held disdain for China and other countries who he believes engage in unfair trading that hurts US industry. In a 2016 rally in Fort Bend, Indiana, then-candidate for President Trump said the Chinese were “raping our country,”ostensibly a response to their unfair trade practices which he claims threaten American business.
A Brief History of Trade Regulations
Unfavorable trade practices by foreign actors have long been the subject of controversy in the US. According to the Economic Strategy Institute (ESI), a firm specializing in globalization and trade analysis, many US trading partners engage in a tactic referred to as “dumping” where they intentionally undercut domestic market rates to receive a more favorable advantage from domestic buyers. Since 1980, ESI notes that there have been over 40 cases of dumping from many countries, including: Russia, Brazil, South Korea, and Japan. The ESI report alleges that firms based in these countries are typically beneficiaries of subsidies and other support from their government. In a model that simulated steel price dumping during the 1990s, weighing the benefits steel consumers receive with the losses the producers endure, ESI found that if there had been no anti-dumping duties imposed, the economic losses would have outweighed the gains.
This report is proof that price dumping and unfavorable trade policies a real threat to US economic interests. However, there are a few key details that distinguish anti-dumping as a tactic from the practices the Trump Administration alleges to be common. Currently, companies can accuse foreign competition of price dumping to the International Trade Commission (ITC), which then directs the matter to the Department of Commerce for an investigation. If the Commerce Department finds dumping to have occured, than U.S. Customs and Border patrol establishes Countervailing duties (CVD) - a tax on a specific good from a specific firm or country. For example, there are CVDs on clad steel plates from Japan, or Frozen Warmwater Shrimp from India. There are countless others from roughly 30 different countries. This process is appropriate given the scope of the problem as ESI defines it: “Based upon historical experience, injurious dumping is modeled as an intermittent or periodic practice that is employed by foreign companies in only some years.”
The Trump tariffs on steel and aluminum are clearly an aggressive strategy. Lawmakers on both sides of the aisle have responded quite clearly, including Republican policymakers. Many responded to the tariff’s announcement with their own take on how this may help or hurt American workers. Greg Gianforte, the lone Representative in the House for the state of Montana and notable Trump ally in Congress, expressed dismay in the aftermath of the announcement: “These tariffs are a bad idea, because they could lead to Montana agricultural products being shut out of foreign markets. They also will drive up costs for America’s manufacturers and serve as a tax that increases prices for Montanans.” Likewise, House Speaker Paul Ryan stated: “I disagree with this action and fear its unintended consequences.” Although a political outsider in more ways than one, it is rare to see this President break from the consensus of his party on such a specific policy stance.
The Politics of Steel
There are a few theories that can explain why the President broke from his party and instituted this policy. According to the Bureau of Labor Statistics (BLS) data and a figure in the Economist magazine, five states in particular hold the most jobs in steel production; Michigan, Indiana, Illinois, Ohio, and Pennsylvania. Of these, Michigan, Ohio, and Pennsylvania are known to be battleground swing states during President elections - keys to winning the electoral college and being elected President. It is no secret that these states were key to President Trump beating Secretary Clinton. The numbers don’t lie; the President won 65 of the 85 total electoral votes across these states. Knowing that many working-class manufacturing workers reside here, this policy may be an attempt to improve the lives of these workers, therefore galvanizing the base that was so crucial to the Trump victory in 2016, this time for 2020.
Figure from the Economist depicts steel intensive and steel production by US State.
There is one key oversight to adopting this point of view: according to the aforementioned date from the BLS, the number of Americans working in steel-intensive industries, which consists of firms that use steel as an input to production, far outweigh those working in steel production alone. In each of the five previously mentioned states, the number of Americans working in steel-intensive industries is more than 50% greater than those working in steel production. The likely impact the tariff will have on these workers is far from good - in fact, most experts contend the outlook is grim.
Tori Whiting, a trade Economist for Conservative think-tank the Heritage Foundation, finds the fact that 17 million Americans working in automotive manufacturing and construction, industries that rely on steel as an input, to be incredibly problematic as they will be punished from the tariffs. She stated: “These potential tariffs may put small groups of manufacturers on life support, but they will jeopardize the jobs of millions. The president has a responsibility to protect all American workers rather than a select few…”. Annie Lowrey of the popular liberal Atlantic Magazine found similar issues, concluding that the President’s characterization of the tariffs to be smart economic and national security policy to be far from the truth.Lowrey echoes the fears of IMF Director Lagarde, contending that US allies will read the tariffs as “flimsy policy” and will engage in a “tit-for-tat” trade strategy that will harm American business.
Conclusion
Experts, thought leaders, policy wonks, and demagogues alike seem to have rallied behind the notion that the steel and aluminum tariffs are bad policy. They are almost guaranteed to bolster one industry at the cost of hindering a much larger swath of others. Despite this, there remains a very palpable fear amongst working class Americans -- a reflection of a painful reality that the post-industrial era will continue to rob Americans of their manufacturing jobs, their way of life, and thus their livelihood. President Trump appears to be making an attempt to bring this sentiment into the mainstream, and as a result, carry his unexpected and unprecedented Presidency into a second term.