Impact of Trump announcement: Tariffs on steel and aluminium industry
A tariff is a tax on imported goods. Imported goods are made overseas and sold in domestic country. This makes the local goods cheaper and imported goods become more expensive which in turn, protects the local industry.
Hence, when Trump announced tariffs on steel and aluminium industry, it implies that imported steel and aluminium will be more expensive compared to US steel and aluminium. The impact on various parties can be described as follows:
- US Steel firms: They will benefit as they receive protection from imported steel firms due to increased price of imported steel against lower price of their own goods. Their market share in US will increase. The industry as a whole will expand with increased employment opportunities and more resources shifting to production of steel goods. Ultimately, factor prices may increase.
- US consumer of steel products: The consumers will be adversely affected. The imported steel will become expensive and the increase will be passed on to consumer. Hence, consumer will end up paying a higher price for the same steel goods that may lead to contraction in demand creating consumption loss for the society. The article also mentions that, ‘Tariffs..punish those firms in other sectors that do not receive tariff assistance, along with all their workers and domestic consumers generally.’
- US firms that use steel as an input to production: US firms that use steel produced by US firms will not be impacted.
However, if they are using imported steel, they will be adversely impacted as it will be paying more for same steel. The cost of production will increase making the firms less efficient. Article also indicates that such moves ultimately harm the domestic economy and don’t benefit it much: ‘Trade wars may initially look good, because they create an illusion that a nation is striking a blow against overseas competitors. In fact, the losers are mostly part of the domestic economy.’ Additionally, the article mentions that ‘with far more US workers employed in industries that use steel, than in making steel’, indicating US’s reliance on imported steel and how tariff can ultimately be detrimental to their own economy.
- US non-steel firms that may subject to retaliation: Such firms will be adversely impacted as the other countries may decide to retaliate against US tariffs by increasing trade barriers in their respective countries. This will adversely impact US firms that are exporting goods to such countries. ‘Tariffs..punish those firms in other sectors that do not receive tariff assistance, along with all their workers and domestic consumers generally.’
Additionally, this will escalate the trade war which may be detrimental for everyone involved. As the article mentions, ‘If Mr. Trump’s actions trigger a global trade war, with trade retaliation resulting in steeper trade barriers erected against more imports, as a trading nation, Australia and rest of the world are bound to be affected by slower economic growth, a less efficient allocation of resources and higher prices for goods and services.’
- Overseas steel firms that export steel to the US: They will be adversely affected as their goods exported to US will become expensive. They will sell less steel to US. Basis article, ‘The tariffs announced, if not a threat, certainly a challenge to the idea of free trade that has dominated since last 40 years and benefitted Australian workers since the reduction of tariffs in early 1980’s.’
- US government: The government’s revenue will increase in form of increased tariff from countries that are exporting steel and aluminium to US. However, ultimately, it may impact the country adversely due to escalation of trade wars and reliance of US on imported steel that will increase cost of steel-based goods both for the firms and consumers.
‘When nations come together to exchange goods and services, everyone does better under a situation of free trade by producing good that they have a natural advantage in.’