Trump’s Tariffs

Following the president’s tweet, questions are being asked: “Should President Trump impose tariffs on foreign steel and aluminum?” And, “How will a tariff affect our economy and metal prices?”

If the allegations of foreign government subsidies to their steel and aluminum industries are true, then this is something that is detrimental to our domestic industries. The same could be said in cases of dumping (predatory pricing) where a product is sold cheaper than its production cost in an effort to gain market share by driving out competitors. This practice is illegal in the United States.

Barring these two scenarios, free market economics dictates that goods should always be produced by the lowest cost producer and sold into the highest market. Unless there is cheating going on to artificially lower costs, or there is a tariff on our goods sold into a foreign country, tariffs are probably not going to be helpful.

While providing a boost to domestic steel and aluminum producers, we already have a case of much-diminished domestic manufacturing capacity. Therefore, with a reduced ability to absorb this metal domestically, we will likely try to export more in a time where factors such as: a strong dollar; China using more of it’s own post-consumer scrap; and, possible retaliatory tariffs, may combine for a perfect storm of things that aren’t good.

Where Trump may be correct, is that at least for now, we’re still the world’s largest economy and the unwillingness to sell cheap products to us by means of retaliatory tariffs may ultimately hurt the foreign manufacturers a great deal. Unfortunately, this won’t come without pain for us, and therefore, tariffs should be used sparingly on a case-to-case basis. Soft power and careful negotiating may ultimately gain us more than sweeping tariffs.