The Real Loss To The US Economy From Trump’s Steel Tariffs

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That tariffs on imported steel mean a loss to the American economy is obvious – by definition those tariffs make steel inside the US more expensive. This reduces the living standard of consumers which isn’t the thing we’re trying to do with an economy at all. We also know this doesn’t increase the number of jobs in the domestic economy, quite the opposite. Our evidence is that – from the Bush tariffs – more jobs are lost in steel consuming industries than are added in steel producing ones:

200,000 Americans lost their jobs to higher steel prices during 2002.
These lost jobs represent approximately $4 billion in lost wages from
February to November 2002.3
• One out of four (50,000) of these job losses occurred in the metal
manufacturing, machinery and equipment and transportation equipment and
parts sectors.
• Job losses escalated steadily over 2002, peaking in November (at 202,000
jobs), and slightly declining to 197,000 jobs in December.4
• More American workers lost their jobs in 2002 to higher steel prices than
the total number employed by the U.S. steel industry itself (187,500
Americans were employed by U.S. steel producers in December 2002).

It’s not a policy that works.

However, the Trump tariffs are in fact worse. For they have loopholes in them – and trying to find that loophole is what makes them worse:

Steel importers are winning most of their requests for tariff exclusions for products they say they can’t find in the U.S., but the process is riddled with inconsistencies and frequent procedural changes, according to manufacturers and importers. The Commerce Department as of Dec. 17 granted about 75% of the 19,000 requests it processed to exclude products from tariffs on foreign steel that took effect in March, according to a Wall Street Journal analysis of those applications. Exclusions issued so far cover 3.8 million tons.

Just think of where the effort is going in industry these days. It’s pretty much impossible to cut 25% – around the tariff rate – out of production costs in one fell swoop. But lobbying government to exempt you from the tariffs will indeed do that. So, where are your energies going to go? In lobbying government of course. And lobbying is entirely zero sum activity at best. More accurately, it’s negative sum – all that time spent begging bureaucrats is time not doing something actually productive.

Which is actually our biggest problem with subsidies and exemptions. More and more economic effort is expended in attempting to gain the subsidy or exemption, an entirely unproductive activity. And we’re all poorer by exactly what isn’t produced as everyone is off competing for those favours.