Leibowitz on Trade: More tariffs on steel, aluminum could cost consumers a lot

Trump redux has a lot of new characters: Scott Bessent at Treasury and Howard Lutnick at Commerce, for example.

It also has quite a few returners: Peter Navarro as Senior White House Advisor on manufacturing and trade and Jamieson Greer at USTR.

And some who are, perhaps unexpectedly, not returning. Case in point: Robert Lighthizer, USTR in Trump 1.0, will not likely have a spot in the new administration.

What the special interests want

Interest groups are not waiting for Inauguration Day on Jan. 20 to try to influence the incoming team. Last week, for example, the Steel Manufacturers Association (SMA) – comprised mainly of electric furnace steelmakers and their allies – put forward a proposal to expand significantly tariffs and other trade restrictions on steel.

Aluminum producers are attempting the same. Aluminum extrusion makers were disappointed by a negative International Trade Commission vote to forgo antidumping and countervailing duties on aluminum extrusions from 14 countries.

China has already been hit with tariffs on aluminum extrusions through an antidumping order, the Section 301 tariffs on Chinese-origin products, and is threatened with more by the President-elect’s proposed 10 percent tariffs on all Chinese imports.

How much tariff protection is enough?

When it comes to steel and aluminum, there seems to be no ceiling, at least in the minds of the industry.

Increasingly, imports are focused on products that are not made in the United States, or are not offered commercially. For example, semifinished steel products are imported by steel rolling mills, especially but not exclusively in the Western US.

Domestic steel producers either do not want to or are unable to compete because of high transport costs for semifinished steel. Or because they want to produce finished steel products in competition with the rolling mills. They certainly have every right to use their competitive strengths. But the rolling mills have an increasingly important role in American manufacturing.

Since the Section 232 tariffs were put in place on steel and aluminum imports, some 500,000 exclusion requests have been filed. The companies who filed them claim that steel and aluminum products they need are not “reasonably available” from domestic producers.

About 70% of the exclusions requested have been granted by the Commerce Department’s Bureau of Industry and Security. Without these exclusions, downstream manufacturers would be in serious trouble.

Tariffs could cost consumers a lot

Some of the new tariffs that the new administration is talking about would tax some of these downstream products. After all, the new tariffs would be on just about everything.

If downstream products are taxed, the impact on the economy would be substantial. The Peterson Institute for International Economics has estimated that an average family’s expenses would go up by $2,600 per year. This assumes a 20% across-the-board tariff on imports.

A 10% tariff would result in a loss of $1,700 per household. With about 131 million households in the United States, the aggregate cost to the economy from a 10% hike would be about $222 billion.

What would the average household get for that money? Would the benefits to protected industries equal or exceed that amount? What ever happened to “Save money. Live better.” (Walmart’s slogan) as an appeal to American consumers?

Trade liberalization hasn’t been all bad

Let’s review the arguments. The Trump team argues that open trade has sucker-punched the United States, and that we have given much more than we have received in return for trade liberalization. It will not surprise you to know that these arguments are overblown in my view.

Through trade liberalization, the United States has relieved poverty not only here but around the world. Save money. Live better. It has also made American manufacturing more efficient and effective by forcing it to keep pace with international competition.

That is certainly true of the automotive industry. Through global competition and government fuel economy regulation, the US industry evolved from the massive cars of the 1960s and 1970s to the environmentally friendly vehicles of today. Electric vehicles also benefit from US subsidies, which are skewed toward American-made EVs. (Unfortunately, the new generation of cars are not inspiring consumers to pay for them.)

Others argue that the tariffs are justified because of rampant trade “cheating”. Transshipments, third country production by Chinese firms, forced labor, and other practices must be stopped. But at what cost?

Not all trade is “unfair”

Certain proposals implicitly assume that all trade is unfair. SMA wants Trump to impose new tariffs by decree with, as I see it, inadequate due process. And some in Congress want to penalize imports from Canada and Mexico without a determination that those imports are unfair.

If the only way to stop unfairness is to prohibit all imports (as though imports are a luxury we can afford to do without), the nation’s welfare will suffer. If our goal is to be self-sufficient in all products, we need to make sure that American manufacturers and farmers can make everything we need before stopping imports. That wisdom was the foundation of President Trump’s Section 232 exclusions process.

Perhaps we can reduce unfair trade. But, like many policy choices, eliminating it entirely is definitely not worth the cost.

Editor’s note

This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.