Backfire economics: Trump tariffs are killing American steel
1. From the Council on Foreign Relations blog post “Trumps Tariffs Are Killing American Steel“:
“Our Steel Industry is the talk of the World,” President Trump tweeted in September. “It has been given new life, and is thriving.” Yet nearly a year after Trump slapped tariffs on imported steel, the U.S. steel industry is not thriving. It is reeling. Steel prices have fallen back to pre-tariff levels. Employment is stagnant. The clearest sign that tariffs are not working, however, is the stock market.
If the president’s policies were working as planned, the steel industry should outperform other sectors. Yet as the graphic above shows, since Trump announced steel tariffs on March 1, 2018, steel-producer stock prices (blue line) have plummeted 22 percent—while the S&P 500 index (brown line) has fallen only three percent.
So why has the market soured on American steel? One reason is that Trump’s tariffs, overall, hurt the industry far more than they help. Here is how we know. For the first half of 2018, steel-producer stocks followed broad market performance, even after steel tariffs took effect. Then, while the S&P index kept rising, steel stocks took two dives—in mid-June and early August, as the graphic highlights—before re-tracking the market.
What happened in June and August? Just before each drop, Trump released lists of imports covered by tranches of his first $50 billion in China tariffs. Since 95 percent of these imports were intermediate goods, purchased by American firms, markets anticipated that the tariffs would push up their prices, reduce their output, and hurt their sales. Tariffs would, in turn, drive down their purchases of domestic inputs, like steel. That tariffs are hurting American steel, the very industry they were imposed to help, shows just how misguided they are.
2. From the New York Times article “U.S. Steel Companies Face Downturn Despite Trump Claims of Revival” (bold added):
In the 10 months since the Trump administration imposed 25 percent tariffs on steel imports, prices in the United States have now fallen back to levels last seen before the tariffs were announced on March 1. Hiring in the steel sector remains stagnant, in part because new mills have become more reliant on automation. Even with the opening and restarting of several mills last year, direct steel industry employment was 146,300 as of November — 4 percent lower than it was four years ago, according to the American Iron and Steel Institute.
Investors are increasingly wary about the industry’s long-term strength, and American steel makers are feeling the pressure. Stock prices for some of the nation’s biggest steel manufacturers dropped by as much as 47 percent in 2018 amid fears of slowing global economic growth and the potential for Mr. Trump to reach trade deals that remove the tariffs. Despite strong earnings in 2018, the stock prices of steel companies have been in a deep slump as investors fret that they are being propped up by government support that will be temporary. In the last year, shares of AK Steel are down 56 percent, US Steel is down 46 percent, Steel Dynamics is down 29 percent and Nucor’s stock is down 18 percent.
The Trump administration imposed sweeping steel and aluminum tariffs on trading partners like Europe, Canada, Japan and Mexico, saying it was trying to protect American security by preventing a flood of cheap metals into the United States. The tariffs, which went fully into effect in June, initially goosed steel prices in the United States, which jumped more than 50 percent after it became clear that the tariffs would really be put in place.
Mr. Trump has routinely pointed to the rising prices as a boon to American steel companies. But the price spike ultimately hurt demand as industries that rely on the metal, like automakers and homebuilders, struggled to absorb the rising costs or passed them on to customers. Caterpillar, the farm equipment manufacturer, said last year that it would face $200 million in additional costs because of the steel tariffs. General Motors slashed its profits forecast for 2018 because of higher steel costs. Many businesses chose alternative materials or delayed investments, putting pressure on steel prices, which have since fallen.
MP: If only there were an academic discipline that has studied and researched international trade, protectionism, and trade wars for hundreds of years and amassed mountains of evidence on the significant costs and economic damage that inevitably results from protectionist trade policies that could have helped us predict the economic fallout, collateral damage and fatal friendly fire of Trump’s trade war.