Key Takeaways
- President Donald Trump’s higher tariffs on steel and aluminum will go into effect on Wednesday.
- The 50% tariffs, doubled from 25%, could boost U.S. steel and aluminum producers but hurt businesses that make things out of the metals.
- Trump’s 2018 metal tariffs are a case study. Research found that those import taxes created 1,000 extra steel and aluminum jobs but dragged down the broader manufacturing sector.
President Donald Trump’s new, higher tariffs on metal could help the steel and aluminum industry, at a cost to the greater economy.
Starting Wednesday, importers of steel and aluminum will have to pay a 50% tax on the metals, up from 25% previously. Trump announced the new trade policy last week, ramping up his previous metal tariffs that went into effect in March. If previous tariffs are any guide, the increased levies could boost the U.S. steel and aluminum business but hurt consumers and businesses that make things out of metal.
Economists have a convenient test case to study: In 2018, Trump raised steel tariffs to 25% and aluminum tariffs to 10%, later granting exemptions to Canada and Mexico. According to one analysis by researchers at Columbia, those tariffs boosted U.S. steel and aluminum producers, resulting in the addition of 1,000 jobs.
But on the flip side, surging metal prices hurt all kinds of other manufacturers as raw materials for engines, soda cans, and myriad other products got more expensive. On top of that, other countries retaliated with tariffs of their own, hurting U.S. exporters. By 2019, the entire U.S. manufacturing sector was down 75,000 jobs from where it would have been without the tariffs, the researchers calculated.
The new tariffs are likely to have a similar effect, Gary Clyde Hufbauer, a trade expert and professor of international finance at Georgetown University, wrote in a commentary for the Peterson Institute for International Economics.
“With the 50% tariff, not only is American steel going to be less internationally competitive, but so are the multitude of American industries that depend on steel as a necessary input,” he wrote.
In addition to the economic effects, the sudden tariff increase throws yet another variable into Trump’s unpredictable trade wars. It also raises the possibility that other existing tariffs—such as his 25% tax on imported cars, or the 25% tariff on pharmaceutical products he said is coming—could also be increased.
“This will lift the average U.S. tariff rate slightly to around 15%,” wrote Sal Gautieri, senior economist at BMO Capital Markets. “But, more worrisome, it could set a precedent for possibly higher duties on motor vehicles and other sector-specific products.”
