There’s been a lot of talk in the news lately about tariffs—specifically whether they’re good or bad. The Trump Tariffs on steel and aluminum have sparked a major debate involving everyone from politicians and economists to metalworkers and importers. There are many opinions flying around right now and it’s important to understand what, exactly, tariffs mean and how they’re intended to work.
What are tariffs?
By and large, tariffs are a form of taxation levied against goods being imported into a country. Tariffs can target specific items, specific industries or specific countries. In the case of the Trump Tariffs, the stipulations are a 25% tariff on imports of steel and a 10% tariff on aluminum, specific to the European Union, Canada and Mexico.
Why are tariffs used?
Tariffs are primarily used to protect a country’s economy in different ways, however they can also be used to gain leverage within the global economy. Some of the chief reasons tariffs are imposed include:
- To protect temporarily crippled or emerging industries. If domestic industries aren’t able to compete in a market based on price, tariffs can help level the playing field until other factors are able to prop up that market, such as quality distinguishers, intellectual property (IP) or scale.
- To protect consumers from dangerous products. Regulatory bodies differ across the world and if the standards of an exporter don’t match those of an importer, a tariff could be levied. This is most often seen in the food industry.
- To protect employment in downturned markets. If the job rate in a specific industry falls due to outsourcing, tariffs can help native businesses regain their competitive footing, allowing for growth and expansion that spurs domestic re-hiring.
- To attack other countries. For example, if China is stealing or copying IP from a U.S. company, tariffs could be placed on import products to raise their price, driving down demand for imports.
In the case of the Trump Tariffs on steel and aluminum, reasons cited include protecting the metalworking industry and its skilled laborers, as well as attacking other countries that are seen as exporting sub-par products.
How will metalworkers be affected?
Theoretically, there are both benefits and drawbacks to tariffs on steel and aluminum imports into the U.S. Metalworkers are liable to see more of the benefits, which may include:
- Reduced competition from global companies
- More opportunity for employment
- Better margins on products
- Opportunity to reestablish market presence
- Fewer barriers to production
Unfortunately, while metalworking companies may benefit from all of these things, consumers will bear the brunt of some negatives, including inflated prices and shrinking competition from companies no longer importing.
All in all, levying tariffs against steel and aluminum imports is geared towards helping the U.S. steel market reestablish itself domestically. Whether tariffs will help accomplish this remains to be seen, but history shows us that outcomes aren’t always positive.
Studies from 2013 looking back at the 2002 United States steel tariffs imposed by President George W. Bush show that this round of tariffs adversely affected U.S. GDP and employment. However, decades before, President Jimmy Carter enacted a ‘trigger price mechanism’ that allowed a certain amount of steel imports into the country, so long as they were sold at or above a set price. This tariff-style measure was relatively successful in keeping steel markets competitive.
Time will tell if the Trump Tariffs on steel and aluminum work to bolster the U.S. steel market or it’s a measure that will have negative consequences down the line.