Studies of these tariffs found evidence of higher steel prices and job losses of 200,000 across the United States. This number is higher than the total number of workers employed by U.S. steel producers (187,500) at the time.
In principle, workers who lose their jobs in steel-related industries should reallocate toward jobs in other industries as the economy rebalances. If this process were frictionless, the impact on unemployment would be short-lived.
However, research has estimated that average moving costs between sectors are high and therefore the reallocation process is slow. As firms in steel-related industries become less competitive, average wages in these industries are therefore likely to decline, and workers are likely to remain unemployed for some time.
The negative effects of the steel tariffs could be amplified if there is retaliation by other countries. China has already retaliated against the steel tariff by imposing tariffs on $3 billion in fruit and meat imports from the United States. Similarly, after President Bush imposed the 2002 steel tariffs the EU challenged his decision. The World Trade Organization declared the tariffs illegal and the EU was given authority to impose $2 billion in retaliatory sanctions against U.S. products.
In another case, when President Obama imposed a 35 percent tariff on Chinese tires in 2009, China immediately responded by imposing restrictions on U.S. shipments of chicken parts, which cost American chicken producers $1 billion in sales in 2011. Estimating the cost of a trade war is challenging because historically there have been so few. But one study does estimate the cost to be 3.2 percent of real world income.
Although it is difficult to say exactly how many jobs will be affected, given the history of protecting industries with import tariffs, we can conclude that the 25 percent steel tariff is likely to cost more jobs than it saves.
Mish Comments: Escaping the Wrath or Trump
That tariffs would cost US jobs was perfectly clear from the day Trump announced the tariffs.
I have commented on that aspect on numerous occasions, well before Trump announced the tariffs.
For the origins of the US trade deficit, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
Europe and Canada now struggle to escape the wrath of Trump.
China, which is barely impacted by new steel tariffs responded with its own tariffs that will cut US exports to China.
The question is not whether jobs will be lost, but rather how many US jobs will be lost as a result of these tariffs.
Meanwhile, the Bloomberg Econoday parrot offered this inane comment: “The details on tariffs are very welcome in what however is yet another subdued Beige Book, one that isn’t signaling an increased pace of rate hikes for the Federal Reserve.”
For tariff discussion, please see Fed’s Beige Book Notes “Dramatic” Increases in Prices Due to Tariffs.
Rate Hike and Inflation Irony
Undoubtedly, the tariffs will slow the global economy, US included, yet the tariff-related price hikes have nearly everyone concerned over inflation.
Economists and market participants have inflation concerns ass-backward.
This article has been republished with permission from Mish Talk.