US imposes tariffs on Aluminium and Steel from almost all major producers, and they will suffer the most – why?
President Trump has once again blundered his economic policies, and imposed tariffs on most aluminium and steel products from all major producers. He has done so in the name of “national security”. Assuming that the US would ever go to war against one of its Allies (which is a peculiar thought in the first place), America would not have enough own production capacity to produce aluminium and steel for the production of their own weapons. Not only does show that Trumps policies are stuck in the cold war era, but Trump has also struck a spectacular own goal.
Aluminium and steel are input products in a vast array of products, ranging from motor vehicles to Pepsi cans. It is so versatile, that there is hardly any manufacturing industry that could get by without it. Therefore, it is vital for the US to get a steady and competitively priced supply of the materials.
It is not certain that imposing tariffs will cause the permanent production of US steel and aluminium to go up, because not many companies will commit the capital to build new production facilities. It is more likely that old inefficient ones, which have been laying idle will start up again (and can again be shut down quickly, should the tariffs be revoked). It is certain however, that the price of steel and aluminium in America will go up. That will hurt all the manufacturers who use steel and aluminium in their products. The higher input prices will have to be passed on to the consumer, and therefore all US produced products will get more expensive.
There are predictions that cars produced in the US will be between U$4 000 and U$8 000 more expensive, which would surely cost them market share. In return all those nations that had tariffs forced onto them are retaliating by imposing targeted tariffs on everything from Bourbon to Oranges, Pork and Harley Davidsons. They shouldn’t bother. Many of those products are going to be uncompetitively priced anyways.
So, what should Donald Tump have done to increase their homegrown production of steel and aluminium? He could have lowered taxes on US aluminium smelters and steel mills or given them special tax breaks. But he has already given a broad tax reduction to corporate America, while the economy is booming. It is never wise to play your trump cards at the beginning, Mr Trump.