April 17, 2018 DPR

Steel Tariffs’ Collateral Damage

Soybean Farmer Reflects Effect Of Tariffs

Steel Tariffs, A Very ‘Big Deal’

When US Commerce Secretary did a media blitz holding up a can of Coca-Cola®, he declared steel tariffs as “No Big Deal”. But even pronouncing tariffs on steel and aluminum imports sent prices skyward. Consequently, doubling of domestic steel prices has resulted in higher production and product prices.

Leaving American Businesses In Limbo

The Element Of Surprise is a smart battlefield strategy though it’s terrible for overall businesses. Certainty in the markets is crucial to forecast budget and expenditure projections. Trump’s “renegotiation” strategy has caught many industries by surprise. His administration has invoked the rarely used 1962 Trade Expansion Act, a. k. a. Section 232. By declaring tariffs as a “National Security”, the administration can proceed in near total secrecy with virtually unlimited policy options. The result is a business community unable to plan and forecast trends.

Delicate Global Trade Agreements At Risk

Trade agreements between rival countries are fragile. Decades of global negotiations, bargaining, and compromise are at risk. Global growth is expecting to reach near 3.9%. This fast pace has helped many countries claw back from the 2008 Stock Market collapse. Protectionists steel and aluminum tariffs threaten this recovery. Possible retaliation by China will be felt by many. Farmers in the Heartland to US automakers, few will be spared the wrath.

Consumers Pay Higher Prices

Historically, steel tariffs have done little to revitalize domestic production. Instead of increased consumption of domestic steel,  manufacturing costs ballooned. Tariffs always have an adverse effect on the broader economy. In fact, since announcing tariffs, US Steel Mills dramatically increased prices. Added taxes on imported steel have spooked US manufacturers who are rushing to stockpile their inventories before tariffs take effect.

What’s At Stake?

As expected, domestic steel and aluminum mills are bullish on tariffs. However, most economists are doubtful it will spur domestic production. As with previous protectionist policies, they fail to stop US steel industry’s decline. What is not in question is the collateral damage inflicted on the overall economy.

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