Why steel and aluminum tariffs matter to the U.S. economy

The Trump administration's hard-edged proposals to impose steep tariffs on steel and aluminum imports would boost a f...

Posted: Feb 19, 2018 9:20 PM
Updated: Feb 19, 2018 9:20 PM

The Trump administration's hard-edged proposals to impose steep tariffs on steel and aluminum imports would boost a flagging sector of American business. No doubt.

The problem is they would probably have unintended consequences that could hurt the economy.

The Commerce Department on Friday sent President Trump several recommendations, including across-the-board tariffs and stiffer targeted penalties on certain nations that sell steel and aluminum in the United States. Trump has until April to decide.

Both metals are crucial raw material for autos, airplanes and appliances made in the United States. The construction, oil and utility industries use them for beams, pipelines and wires, as well as cans for food and drinks.

Imports make up about a third of the 100 million tons of steel used by American businesses every year, and more than 90% of the 5.5 million tons of aluminum used here. For years, imports have caused trouble, and led to plant closings, for the U.S. steel and aluminum industries.

It's not clear how much imports will fall if Trump follows through with the tariffs. It's also not clear whether American steel mills and aluminum smelters can increase production enough to match the overseas supply that would be lost.

Related: Trump tariffs on steel would hit China

The American Iron and Steel Institute, the trade group for steelmakers, applauded the proposed tariffs and said domestic steel mills could increase production enough to close the gap. But experts question that claim.

They point out that imports make up far too much of the market for some products, such as steel pipes and tubes, to have domestic mills make it up. And a steel mill that makes one type of steel product, such as sheet steel used in the body of a car, can't easily be converted to make another type of steel product, such as pipelines or tubing.

"There's a necessity to that imported material," said Philip Gibbs, a metals analyst for KeyBanc Capital Markets. "In places like oil country, which uses pipe and tube, you'd definitely feel it. You would need to resuscitate a lot of mills that have been shut down in the last three or four years. It'd take a lot of capital to do that."

The Commerce Department says that 10 furnaces, which produce molten steel, have closed since 2000. In addition, eight aluminum smelters have closed or cut back operations since the start of 2015, according to the Aluminum Association.

Even the Aluminum Association, which represents the domestic industry, concedes that some aluminum has to be imported.

The U.S. aluminum industry could satisfy more demand than it does today, but not all domestic demand, said spokesman Matt Meenan.

The aluminum trade group is cautious about the proposed tariffs. It says they should be targeted at China but not Canada and the European Union.

Aluminum imports from those countries support American aluminum jobs, the trade group said, because they are an important part of the business operations of the remaining U.S. industry.

So American companies would still need to buy imported steel and aluminum, even with tariffs in place.

And that leads to a problem for the broader economy.

Imported steel and aluminum would become more expensive because of tariffs. And the price of domestic steel and aluminum could also rise because of market forces. That means manufacturers could be forced to raise prices for products built in the United States, like cars and appliances.

And American-made cars, planes and appliances could wind up with far fewer American-made parts. Because domestic parts suppliers depend on imported steel and aluminum, they could be forced to raise prices and lose market share to foreign competitors.

"If you impose tariffs, you might think you're doing a good job saving jobs," said KeyBanc's Gibbs. "But at the end of the day, people will farm out components and products offshore."

Related: Big business to Trump - Tariffs could backfire

Even some members of Congress who have steel or aluminum factories in their states are worried about the possible tariffs. At a White House meeting earlier last week, both Republicans and Democrats urged caution on trade action on steel and aluminum.

"Mr. President, I think we do need to be careful here," Senator Roy Blunt, a Missouri Republican, told Trump at a White House meeting that the press was allowed to attend. "We make aluminum and we make steel in Missouri, but we buy a lot of aluminum and we buy a lot of steel as well."

"We've got to be careful because we don't want to increase the cost to our consumers of all these steel products that go into our other manufacturing," said Senator Rob Portman, a Republican from Ohio who served as United States Trade Representative during the Bush administration.

Related: China warns Trump over potential steel and aluminum tariffs

Another big concern: The tariffs could trigger retaliation. Other countries could impose tariffs on American exports.

"I think everyone in this room supports you holding China accountable for its overcapacity," said Representative Kevin Brady, a Texas Republican. But he said that the kind of tariffs Trump was considering can "do as much damage as good."

Trump seemed poised to take action on imports, no matter the cost to other industries.

"I look at it two ways: I want to keep prices down, but I also want to make sure that we have a steel industry and an aluminum industry," he said.

Minnesota Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 36303

Reported Deaths: 1476
CountyConfirmedDeaths
Hennepin11796776
Ramsey4685217
Stearns226519
Dakota218087
Anoka2097107
Nobles16526
Olmsted104715
Washington100840
Mower9212
Rice8097
Scott6584
Kandiyohi5651
Clay56337
Wright4455
Blue Earth4032
Todd3982
Carver3401
Lyon2952
Sherburne2954
Freeborn2810
Steele2150
Benton2083
Watonwan2030
St. Louis16114
Martin1565
Nicollet14412
Cottonwood1330
Goodhue1198
Winona11915
Crow Wing10212
Pine1000
Chisago931
Otter Tail921
Unassigned8335
Le Sueur821
Carlton810
Dodge810
McLeod810
Polk792
Chippewa751
Itasca6512
Douglas610
Isanti610
Meeker581
Morrison581
Waseca570
Becker540
Jackson540
Faribault530
Murray510
Pennington500
Sibley482
Mille Lacs322
Wabasha310
Brown302
Rock300
Yellow Medicine290
Beltrami270
Fillmore250
Pipestone251
Houston240
Renville242
Norman200
Swift201
Wilkin203
Redwood160
Wadena150
Aitkin140
Big Stone140
Kanabec141
Cass132
Koochiching131
Marshall120
Pope100
Lincoln80
Clearwater70
Lake70
Mahnomen71
Grant60
Roseau60
Hubbard50
Traverse50
Lac qui Parle40
Stevens40
Red Lake30
Kittson20
Cook10
Lake of the Woods00

Iowa Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 28991

Reported Deaths: 715
CountyConfirmedDeaths
Polk6037177
Woodbury316544
Black Hawk209557
Buena Vista169511
Linn120382
Dallas117529
Johnson11458
Marshall101218
Wapello70030
Story6943
Pottawattamie69211
Crawford6662
Scott63110
Muscatine61544
Dubuque51222
Sioux4550
Tama44529
Wright3700
Louisa36013
Jasper31717
Plymouth3004
Warren2452
Dickinson2412
Washington2259
Hamilton1851
Webster1612
Boone1361
Clarke1252
Allamakee1244
Clay1210
Mahaska11517
Shelby1060
Poweshiek1048
Cerro Gordo991
Clinton951
Bremer876
Des Moines843
Carroll821
Henry823
Taylor780
Cedar751
Emmet750
Franklin750
Pocahontas751
Cherokee720
Monona700
Marion660
Floyd652
Guthrie644
Hardin630
Sac630
Benton581
Jones540
Jefferson530
Osceola510
Harrison500
Monroe506
Humboldt481
Lee482
Hancock470
Iowa470
Buchanan451
Butler452
Calhoun442
Delaware411
Clayton393
Lyon390
Davis371
Madison372
Mills340
Fayette330
Grundy330
Kossuth320
Palo Alto310
Lucas304
Winneshiek290
Greene280
Chickasaw250
Union250
Jackson240
Winnebago240
Mitchell230
Howard220
Ida220
Appanoose203
Page200
Keokuk191
Van Buren190
Audubon171
Cass170
Adair150
Ringgold140
Worth140
Decatur100
Montgomery102
Adams80
Wayne80
Fremont70
Unassigned30
Rochester
Clear
71° wxIcon
Hi: 87° Lo: 64°
Feels Like: 71°
Mason City
Clear
66° wxIcon
Hi: 89° Lo: 64°
Feels Like: 66°
Albert Lea
Clear
68° wxIcon
Hi: 88° Lo: 65°
Feels Like: 68°
Austin
Clear
70° wxIcon
Hi: 89° Lo: 65°
Feels Like: 70°
Charles City
Clear
72° wxIcon
Hi: 88° Lo: 65°
Feels Like: 72°
HOT AND HUMID
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

The miraculous catch

Image

New Swine Flu

Image

Charles City athlete is taunted with racial comments

Image

RPD Policy Listening Session

Image

Covid-19 4th of July Plans

Image

Will racism be declared a public health crisis in Olmsted County?

Image

Helping the homeless in Rochester

Image

Sean's 4PM Weather 7/1

Image

New Trade Deal In Effect

Image

Senator Klobuchar Tackles Hunger in Minnesota

Community Events