Investigating Economic Effects of 2018 Steel Tariff Imposition In Usa

Mr. Liam Palmbach & Kishore G. Kulkarni, Ph.D.,

Abstract

In 2018, the Trump administration imposed a 25% tariff on steel imports from a number of countries. The administration justified this action by referring to section 232 of the 1962 Trade Expansion Act, which allows for the imposition of tariffs for ‘national security reasons.’ While the domestic American steel industry applauded the action, the tariffs have been extremely controversial and elicited consternation among countries and industries negatively affected. Overall, the tariffs had an initial positive impact on the steel industry, increasing both employment in American steel-producing firms and increasing prices charged for the high-demand commodity. However, this effect was relatively short-lived and was likely not as pronounced as the Trump administration would have preferred. Meanwhile, steel-consuming industries, such as the automobile industry, saw a steep rise in prices, a loss of competitiveness, and a significant drop in employment rates. Given that substantially more labor is employed in the steel-consuming industry as compared to the steel-producing industry, those negatively impacted by the use of tariffs significantly exceeded those who benefitted from them. Beyond the direct impacts on steel-producers and steel-consumers, the 2018 tariffs also had the effect of provoking retaliatory tariffs on a variety of American industries, which created to a phenomenon known as ‘cascading protection’ as ever more domestic industries, which experienced a loss of competitiveness as a result of the tariffs, lobbied the administration for the imposition of further tariffs.