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Actually, Tariffs Do Matter

In a recent tweet, President Donald Trump described tariffs like the ones he has imposed on America's biggest trading partners as "the greatest!" Rather than correct his boss' delusion, Commerce Secretary Wilbur Ross suggested import taxes on steel and aluminum could in fact be the elusive free lunch we've been waiting for.

In written testimony for the Senate Finance Committee, Ross said a 25 percent tariff on steel imports would lead to the reopening of closed mills, the maintenance of a skilled workforce, new investment in needed R&D, and a potential increase in total production, all of which would allow the domestic steel industry to "achieve long-term viability." While doing the cable news rounds, he added that this miracle would be achieved at a cost of only a few cents per item and would have "a negligible effect" on the economy.

Republican and Democratic senators didn't buy this fantasy, and neither should you. Even if it were the government's role to artificially inflate one sector's profitability, the American steel industry doesn't need the help. It already produces 70 percent of the steel consumed in the U.S., and its executives are richly compensated for it.

Domestic steel output is also near an all-time high, despite a large reduction in the sector's workforce since its peak in 1956. As the Commerce Department's own January 2018 report shows, that decline in jobs predates the competition from China and is mostly the result of innovation and industry consolidation.

Ross isn't the only person to claim that imposing tariffs on a wide array of goods won't cause America to suffer that much. Some argue that a 25 percent import tax on $34 billion worth of Chinese goods is a drop in the bucket compared to our $20 trillion economy. But that's a bogus justification—international trade is less than 20 percent of U.S. gross domestic product, and trade with China amounts to just 3 percent. So yes, the economy-wide effects of import taxes are both undeniably negative and undeniably small when measured against our giant economy as a whole.

What's not insignificant is the negative economic effect on industries that rely on the product being taxed. In 2002, the U.S. imposed similar tariffs in the name of protecting America's 190,000 steel employees. All it did was allow domestic producers to jack up the price of American steel. Meanwhile, 200,000 people lost their jobs in downstream sectors, with no employment increase in the steel industry. In other words, more Americans found themselves out of work than were employed in the entire American steel industry at the time. The impact of the tariffs on the nationwide economy looked negligible, but the deep harm to steel-consuming sectors prompted the Bush administration to suspend the policy four years ahead of schedule.

The same chain reaction is happening today. According to the Commerce Department, 14,000 jobs will be gained due to the metal tariffs—and roughly 16,000 jobs will be lost in the construction sector alone. Add losses from some 20 other downstream industries, and you get an idea of the devastation. From a garbage disposal company in Wisconsin to several tire-cord manufacturers in Alaska, thousands of small and medium-size domestic businesses employing hundreds of thousands of workers are now weighed down by higher production costs that jeopardize their profitability and their employees' livelihoods. Even when they can shift some of the burden to consumers, these companies become instantly less competitive globally.

The flood of U.S. companies appealing to the Commerce Department for exemptions from the Trump tariffs reveals how widespread the impact is. That agency has received more than 19,000 applications so far from businesses asking Uncle Sam to stop hurting them via import taxes.

One such applicant is the Missouri-based Mid-Continent Nail Corporation, which has already laid off 12 percent of its work force due to higher costs. It now says it might be forced to move its plant to Mexico in order to remain competitive—if it manages to stay open at all.

Most government policies don't have immediate and noticeable effects on an economy as large as ours. But even if Trump's tariffs lead to only a tiny downturn in GDP numbers, I'll bet it won't feel negligible to the Americans who will lose their jobs in the name of government favoritism.

Photo Credit: David Carson/Post Dispatch/Polaris

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  • sarcasmic||

    Jesus, don't you guys understand that intentions are all that matter? Just like minimum wage, the drug war, gun free zones, and other policies put forth with good intentions, these tariffs could not possibly have any ill effects. They are built on a foundation of good intentions. Any ill effects must be caused by something else, because intentions.

  • Leo Kovalensky II||

    Even if it were the government's role to artificially inflate one sector's profitability, the American steel industry doesn't need the help. It already produces 70 percent of the steel consumed in the U.S., and its executives are richly compensated for it.

    Domestic steel output is also near an all-time high, despite a large reduction in the sector's workforce since its peak in 1956. As the Commerce Department's own January 2018 report shows, that decline in jobs predates the competition from China and is mostly the result of innovation and industry consolidation.

    So... it's a handout to steel execs and The United Steelworkers.

    #DrainTheSwamp

  • chemjeff radical individualist||

    Of course. These tariffs were always about graft and vote buying in the Rust Belt.

  • Jerryskids||

    You people just don't understand Trumponomics. See, if we import less, domestic producers will have to produce more to make up for the shortage and, as everybody but you morons seem to intuitively grasp, increased supply leads to lower prices, not higher prices. It's a basic law of supply and demand! American steel workers produce more steel, steel becomes cheaper for everybody. It's a win/win situation.

    Which is why I suggest rather than piddling around at the margins and just increase tariffs here and there, we would be far better off if everything we consume were strictly produced here rather than abroad. And to make sure the domestic supply stays high, domestic producers should not be allowed to sell to foreign buyers. Those are American goods produced by hard-working Americans in American factories, only Americans should be allowed to buy them. Therefore, it's obvious we should outlaw both imports and exports and then we'll just be swimming in wealth. Me, I'm planning on getting rich by stopping buying anything from stores and producing it myself and I'll be damned if I sell a nickel's worth of anything I produce to benefit some stranger.

    #BanAllTheTrade

  • Leo Kovalensky II||

    Hey if 25% tariffs are good, then 2500% tariffs must be REALLY good. Like, 100x better, or something. I think you're on to something here Jerry.

  • loveconstitution1789||

    Thats why you dont see this as a good negotiation strategy with weak trading partners.

    Youre not a negotiator, so throwing out outrageously high tariffs seems fine to you.

  • Kongming||

    Brilliant! Now we just need a snazzy term for this to help sell it. Hmmmm, how about "Juche?" It's a Korean word meaning "self-reliance."

  • DiegoF||

    Very Emersonian! Sounds awesome; I will adopt it as my own philosophy. "Juche"; where can I learn more about its principles?

  • Kongming||

    I believe you can learn about it in one of the two Koreas, but I'm blanking on which right now. Probably the more successful of the two, given how brilliant of an idea it is.

  • Scarecrow Repair & Chippering||

    Yes, that would be Best Korea, north of the slave line established by Worst Korea in collaboration with the running dogs of the USA.

  • Kongming||

    Ahhhh Best Korea, where men are real men, women are real women, and small furry creatures from Alpha Centauri are real small furry creatures from Alpha Centauri.

  • Old Mexican - Mostly Harmless||

    Jokes (and sarcasm) aside, Trumpistas are INDEED appealing to economic autarky. Or, they say, burning your own business --or like Walter Block quipped, shooting a hole in your own boat-- is a "negotiating tactic to obtain a better deal", hopefully a better deal on boat repair kits?

    What Ross is arguing is that people are not going to notice these tariffs in their finances. Which means that either the tariffs are not supposed to change buyers' behavior and thus provide a "bargaining chip" in a negotiation but meant to protect politically-connected industries, or Ross is simply lying through his teeth.

  • Pepe||

    Thank you for exposing your ignorance. This is negotiation- all that the other nations have to do is drop their tariffs on our goods- and they will if forced to since we are holding all of the aces. Please explain to me why you are not critizing the nations that tax all of our exports to their nation.?

  • Conchfritters||

    Ross isn't the only person to claim that imposing tariffs on a wide array of goods won't cause America to suffer that much.

    I saw lefty union boss on cable news saying the same thing, and basically said the "left" is for these policies, and went on to rail against Obama for all his free trade agreements.

  • Conchfritters||

    I should also say that he ended the interview saying he still doesn't like Trump, and won't vote for him ever. I suspect if Trump had a (D) after his name, Trump would be his hero.

  • Ship of Theseus||

    This. I'm still amazed at all my Dem friends who love it when I bash this tariff stuff and all the Repubs who hate it. But you know that when the principals change, so will the "principles".

  • JWatts||

    "Ross said a 25 percent tariff on steel imports " ... "It already produces 70 percent of the steel consumed in the U.S"

    I appreciate an economic argument. However, this fails to be a good economic analysis. Almost all pricing is a curve. Indeed, we call it a supply and demand curve.

    So, a 25 percent tariff on Chinese steel will result in somewhat higher pricing as American and other foreign producers displace the Chinese production. It will certainly Not result in a 25 percent hike in the price of steel or even a 25 percent hike on 30% of the steel market. I think the tariff is a bad idea, but this article overplays the costs.

    A better analysis leads to better conclusions.

  • Leo Kovalensky II||

    There's nothing stopping US steel manufacturers from pricing just below the inflated imported steel prices. So, while it might not result in a 25% rise in steel prices, it could certainly result in a price increase depending on the difference in prices before the tariffs. Additionally, for consumers of steel to switch their supply chain is not free.

    Besides that, I think that the point of the 70% comment is that the industry didn't need to be propped up relative to imported steel, given that it already commanded 70% of the domestic market. It certainly wasn't an industry which was faltering to the point of needing government support in the interest of national security (which was the basis for executive action on tariffs). It's hard to argue with a straight face that 70% of the US steel industry isn't enough capacity to survive a supply chain disruption in a national security emergency.

  • Old Mexican - Mostly Harmless||

    Re: JWatts,

    So, a 25 percent tariff on Chinese steel will result in somewhat higher pricing as American and other foreign producers displace the Chinese production.


    Steel is a commodity and an input in productive efforts. In a blink, the prices producers will have to pay for steel for which there are already very serious supply networks is going to go up in price a TWENTY FIVE FUCKING PERCENT.

  • Ship of Theseus||

    I can report that the steel costs for my employer have gone up 19% YOY.

  • DiegoF||

    Which matters more: tariffs; or black lives?

  • Conchfritters||

    ALL Tariffs and lives matter.

  • ||

    US citizens matter more. NAFTA/WTO did more to destroy vibrant working class communities (black and white) than any other policy in the history of the US. I went to college in Pittsburgh, and Pittsburgh is doing great. They reinvented themselves around the core competencies of the local universities - medicine, tech - and its a great place to live. But go upstream (Monessen, Homestead) or downstream (Alliquipa) where there were very large black populations, and it is a different story. Once solid working class communities are non-existent. Drug use/crime is rampant, populations are 1/4 of their peak.

  • Ellis Wyatt||

    Nonsense (NAFTA) Our industrial base was destroyed in the 1986 "Tax Reform" Act. Now credited to Reagan, it was authored by Democrats - Senator Bill Bradley and Rep Dick Gephart.

    A BIPARTISAN fucking of the American people.

    Democrats repealed Kennedy's 7% Investment Tax Credit and Reagan's Accelerated Depreciation -- which, at different times, had rescued an industrial base that was on its knees. Said they were -- what else? -- "repealing corporate loopholes."

    Republicans repealed the corporate income tax for all businesses up to 100 shareholders. Sub S corporations applied to only small corporations, 10 shareholders max -- to eliminate double taxation of corporate profits.

    Afterward, we now double-tax large corporations, who provide the best wages and benefits, to subsidize smaller employers who provide lower wages and benefits ... screwing ALL large employers, with a double hit on large manufacturers..

  • Pepe||

    You are very confused. This is not us in an economics class debating whether or not free market trade is beneficial- it is about us getting the same deal we are giving them.

  • Ellis Wyatt||

    How fuckling ILLITERATE are you, Pepe? And WTF are you babbling about ... economics class?

    Common knowledge + junior high math.

    TRUMP'S TARIFFS WILL ALREADY INCREASE CONSUMER PRICES BY AN AVERAGE OF $500 PER YEAR, FOR EVERY HOUSEHOLD IN AMERICA. AND HE THREATENS TO DOUBLE THAT.

    Typical brainwashed Trump puppet,

  • Contactforinfo||

  • loveconstitution1789||

    Now that all the trolls, Anarchists, and other commenters who hate America have spoken...

    The EU cracked first within 5 weeks. Mexico has sat down for real talks about lowering trade restrictions. Canada cracked but backed off so Trudeau could act tough before elections. China has cracked and is working out lowering trade restrictions.

  • Ellis Wyatt||

    The only thing cracked is you. So you're wrong on both China and Canada.

    David Nolan has shown how Trump's tariffs have already increased prices by $500 per very household in America ... and threatened to double that .. for China alone.

    And you forgot your "MAGA" chanting.

    P.S. The Wall Street Journal today noted that Trump has launched a trade war against China, but never said what he wants from it. The Journal normally sucks up to Trump, almost as badly as you do. So you have a MAJOR blunder on China/ And (perhaps) a lie about Canada.

  • Pepe||

    Who is David Nolan? Some sort of deity?

  • loveconstitution1789||

    This nolan is hihn, our resident multiple banned troll.

  • Ellis Wyatt||

    Who is David Nolan? Some sort of deity?

    Pepe just made a total public ass of himself.
    But I share the blame. I should have linked to Nolan's FACTS

    Oh wait. YOU KNOW WHAT NOLAN SAID .. AND MADE A STUPID COMMENT THERE TOO!

    You are one fucking psycho. Here's David's SIMPLE facts and arithmetic -- so everyone can laugh at you.

    The latest round is a 10% tariff on $200 billion = $20 billion .
    Divide that by 122 million households = $160 tax increase for every household in America.
    But it jumps to 25% next year, so 250% of $160 = $400 for every household.in America.

    We already have a 25% tariff on $50 billion. That's 1/4 the recent one. So add 25%, he's already at $500 for every household.

    He threatens tariffs on ANOTHER $250 billion of Chinese goods, which would double that to = $1,000 per household. Every household in America.

    Common knowledge to anyone informed on this.
    And junior high math,
  • loveconstitution1789||

    Trolls get very upset at the truth which does not support their mission statement.

    They clearly got tired of responding to each other.

  • Ellis Wyatt||

    Diversion

  • wearingit||

    Ha. Don't worry about lovecon here- if he/she insults you, it almost certainly is complete garbage. They have bought into the Trump cult lock, stock, and barrel.

  • loveconstitution1789||

    See. Trolls.

  • Pepe||

    Correct- it is negotiation, not ideology.

  • Ellis Wyatt||

    THIRD CORRECTION.

    It's arithmetic, Trumptard

    The latest round is a 10% tariff on $200 billion = $20 billion .
    Divide that by 122 million households = $160 tax increase for every household in America.
    But it jumps to 25% next year, so 250% of $160 = $400 for every household.in America.

    We already have a 25% tariff on $50 billion. That's 1/4 the recent one. So add 25%, he's already at $500 for every household.

    He threatens tariffs on ANOTHER $250 billion of Chinese goods, which would double that to = $1,000 per household. Every household in America.
  • TJJ2000||

    I can't believe a country who spends billions subsidizing Chinese Products can have any sort of grudge against tariffs to pay for those subsidies.

    Granite, Instead of Tarriff's -- the smart thing to do would be to just cancel all the socialized subsidies used to carry, market and ship foreign goods. But I'm certainly not going to be against using Tarrifs to balance fair play.

  • Ellis Wyatt||

    I can't believe a country who spends billions subsidizing Chinese Products can have any sort of grudge against tariffs to pay for those subsidies

    You said THAT ... in public!

    WE DON'T SUBSIDIZE CHINESE SHIPS.

  • TJJ2000||

    We do subsidize shipping on products imported from China. As well as subsidize any and all infrastructure to import those goods.

    Like I said before - It'd be much better if the U.S. just wasn't subsidizing X, Y, and Z (exactly where is that in the Constitution anyways) but if Tarriff's is the best way to balance the subsidy budget at this point its better than nothing at all.

  • Pepe||

    Veronica de Rugy- you are my favorite economist. But you are confusing economic theory with business negotiation described by the main idea of "Theory of Moral Sentiment" by Adam Smith- this is our representative saying to our business partner, " I want the same generous deal I am offering you if you want to do business with us." In the long term, when those unfair agreements shake out, everyone will benefit to a far greater extent.

  • Ellis Wyatt||

    But you are confusing economic theory with business negotiation

    You're confusing facts with Trumptard idiocy. And REFUSING to accept in-con-veeeen-yent facts four times on this page!"

    The latest round is a 10% tariff on $200 billion = $20 billion .
    Divide that by 122 million households = $160 tax increase for every household in America.
    But it jumps to 25% next year, so 250% of $160 = $400 for every household.in America.

    We already have a 25% tariff on $50 billion. That's 1/4 the recent one. So add 25%, he's already at $500 for every household.

    He threatens tariffs on ANOTHER $250 billion of Chinese goods, which would double that to = $1,000 per household. Every household in America.


    the main idea of "Theory of Moral Sentiment" by Adam Smith

    Read it again! Or have a junior high student explain it in one-syllable words,

  • Schiziodman21||

    The cost of doing business always fluxuates based on a complex string of variables of which tariffs are one. If a downstream business, in the case of the steel industry, does not have a strategy to understand and deal with these fluxuations will not fare well. Those that are prepared will survive if not thrive.

    We've always had tariffs that shift and change in focus and cost. This is hardly new - different, changed - but not new. Yet somehow we all survive.

  • Ellis Wyatt||

    If a downstream business, in the case of the steel industry, does not have a strategy to understand and deal with these fluxuations will not fare well.

    They increase prices. That's how competition works

    . Yet somehow we all survive.

    Yeah, but that's an evasion. Survival is not the issue.
    Prices will increase by $500 per year, for every household in American (average), on existing tariffs. And Trump threatens to double the damage, to $1,000 fer household.

    It was a trade war that triggered and worsened the Great Depression. That too has nothing to do with survival.

  • vek||

    1. I don't think the way Trump has gone about tariffs has been a good way to do it... Across the board, from day one, at a rather high rate would be what forced them to buckle instantly. That's what I would have done...

    But 2. The "we make 70% of our own steel" thing is a total dodge.

    It's one of those things that is arguably technically true, but not really. We IMPORT massive amounts of the steel we consume in goods that are made overseas... We don't manufacture anywhere close to 70% of the steel we REALLY consume, we just import finished goods, which is how they get that 70%. It'd be hard to nail down the real figure, but I'd bet my life it's waaay under 50%.

  • vek||

    3. This is why if you're going to tariff mutha fuckas, finished goods is really where it's at too. Pretty much any type of raw input should probably be tariff free, or lower tariffs than on finished goods. Tariffs are taxes like anything else, and the structure of them encourages or discourages behavior. If we were to cut the income tax dramatically, have across the board tariffs on imported finished products of some semi high amount like 25%, and perhaps 10% on inputs, this would have the net effect of NOT costing consumers shit on net, but encouraging domestic production in markets where we're ONLY disadvantaged compared to international competition to the tune of 25% or less. Stuff where they really whip our ass in costs would still be readily imported.

    This is the kind of structure Trump should really be using if he wants to do what he says... Unfortunately he can't get it done/doesn't even know himself this is what he should be doing.

  • Ellis Wyatt||

    Trump's existing tariffs will already increase prices by $500, for every household in America.
    He has also threatened to double them, which would be $1,000 per household.
    And YOU want to screw us even worse. Are you on Trump's Council of Economic Advisers?

    We don't manufacture anywhere close to 70% of the steel we REALLY consume, we just import finished goods, which is how they get that 70%. It'd be hard to nail down the real figure, but I'd bet my life it's waaay under 50%.

    And the Easter Bunny is real!

  • vek||

    Hihn, I understand the concept of short term pain for a long term gain that makes it worth it. If he turns up the heat enough for China to buckle it will be worth it, and SAVE Americans money in the long haul, and make more jobs here, and a stronger economy in general. I'm willing to pony up my $1,000 in the short term... And I'm a total tightwad that hates taxes. It's worth the risk IMO, because the odds are in our favor that China will buckle if we apply enough pressure.

    As for steel, how many products that you've bought in the last dozen or two years that are made out of steel say "Made In USA" on them? Not many. Your car, maybe, depending on the brand. But not most other stuff. Hence, those kitchen utensils that were made in China, out of stainless steel, are not counted in that figure. But to have a comprehensive view of our steel consumption, they should be. It's no different than leaving out plastic products we import from our REAL use of petroleum products.

    I admit it's a nearly impossible task to figure out the exact usage we really have, but it's obvious we use a lot more of all these things than the numbers show since we import heavily in finished form.

  • Ellis Wyatt||

    Hihn, I understand the concept of short term pain for a long term gain that makes it worth it.

    My name is not Hihn, And you're full of shit. it's not tariffs or immigration. IT'S THE TAX CODE. NOT just the highest corporate rates, Compare with Canada,

    Corporate tax rate
    21% US (large corps only)
    14% Canada

    Double taxation of corporate profit.
    US - taxable income
    Canada -- EXEMPT

    Capital gains
    US -- taxes inflationary gains
    Canada - all gains indexed for inflation.

    Now THINK. As automation reduces consumer prices, we have money to buy new stuff. But that new stuff is made abroad, because we punish new investments in factories and machinery. That was created by (mostly) progressive Democrats .. but swallowed by Trump (a lifelong DEMOCRAT), and his loyal cult followers,

    I admit it's a nearly impossible task to figure out the exact (steel) usage we really have

    IT'S FUCKING EASY. You SERIOUSLY believe we have no way of measuring the output of US steel mills????? SERIOUSLY?

    You can swallow all the partisan lies you want to, but NEVER pitch slogans and soundbites at anyone who is both educated and factual.

    Left - Right = Zero

  • vek||

    *sigh*

    Yes, our tax code is horrible. Yes we should change it. No argument here.

    As far as our production, we know what we kick out from our mills... And you completely missed my point. By subbing out all our manufacturing our REAL consumption of steel is under reported. Your steel dinner fork that was made in China is NOT counted as steel consumption in the USA. Neither is the stainless steel pot on your stove. Or the garden rake you have in the garage etc.

    We're producing far less of the steel we actually consume every year than that stat captures.

  • ||

    The economic arguments are interesting, but economists need to understand the public in the US doesn't believe or trust anything they claim.

    Economists trumpeted to benefits of NAFTA and WTO for China. And the economical predictions mostly held true. Average / total wealth and income rose. But the benefits were unevenly distributed.

    Economist have failed to factor in the effect these trade agreements had on small and mid sized towns across the country. The benefits of free trade went to the folks that were already doing well, the average manufacturing worker got nothing except for closed factories (and cheap stuff from China).

    I understand the economic analysis in theory. But in reality, the US industrial base has an immense value to the US. Manufacturing jobs have a benefit far in excess of the wages and are pillars of the community. When the pillars collapse, so does the community with the resulting suffering, opiod use, tax base loss, etc (see Detroit, Dayton, etc). Since these intangible costs/benefits are always underestimated or ignored (see NAFTA/China), i don't really care what the economists say.

    And the analysis does not include and discussion of US national security impacts wrt China.

  • Ellis Wyatt||

    Tribal nonsesne Facts are just above,

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