ECONOMICS
A C T U A L LY,
TARIFFS DO
M AT T E R
VERONIQUE DE RUGY
industry. In other words, more Americans
found themselves out of work than were
employed in the entire American steel
industry at the time. The impact of the
tariffs on the nationwide economy looked
negligible, but the deep harm to steel-
consuming sectors prompted the Bush
administration to suspend the policy four
years ahead of schedule.
The same chain reaction is happen-
ing today. According to the Commerce
Department, 14,000 jobs will be gained
due to the metal tariffs—and roughly
16,000 jobs will be lost in the construc-
tion sector alone. Add losses from some 20
other downstream industries, and you get
an idea of the devastation. From a garbage
disposal company in Wisconsin to several
tire-cord manufacturers in Alaska, thou-
sands of small and medium-size domestic
businesses employing hundreds of thou-
sands of workers are now weighed down
by higher production costs that jeopardize
their profitability and their employees’
livelihoods. Even when they can shift
some of the burden to consumers, these
companies become instantly less com-
petitive globally.
The flood of U.S. companies appealing
to the Commerce Department for exemp-
tions from the Trump tariffs reveals how
widespread the impact is. That agency has
received more than 19,000 applications so
far from businesses asking Uncle Sam to
stop hurting them via import taxes.
One such applicant is the Missouri-
based Mid-Continent Nail Corporation,
which has already laid off 12 percent of
its work force due to higher costs. It now
says it might be forced to move its plant to
Mexico in order to remain competitive—if
it manages to stay open at all.
Most government policies don’t have
immediate and noticeable effects on
an economy as large as ours. But even if
Trump’s tariffs lead to only a tiny down-
turn in GDP numbers, I’ll bet it won’t feel
negligible to the Americans who will lose
their jobs in the name of government
favoritism.Contributing Editor VERO N IQ U E D E RU GY is a
senior re search fellow at the M ercatus Center at
George Mason University.IN A RECENT tweet, President Donald
Trump described tariffs like the ones he
has imposed on America’s biggest trading
partners as “the greatest!” Rather than
correct his boss’ delusion, Commerce Sec-
retary Wilbur Ross suggested import taxes
on steel and aluminum could in fact be the
elusive free lunch we’ve been waiting for.
In written testimony for the Senate
Finance Committee, Ross said a 25 per-
cent tariff on steel imports would lead to
the reopening of closed mills, the mainte-
nance of a skilled workforce, new invest-
ment in needed R&D, and a potential
increase in total production, all of which
would allow the domestic steel industry to
“achieve long-term viability.” While doing
the cable news rounds, he added that this
miracle would be achieved at a cost of only
a few cents per item and would have “a
negligible effect” on the economy.
Republican and Democratic senators
didn’t buy this fantasy, and neither should
you. Even if it were the government’s
role to artificially inflate one sector’s
profitability, the American steel industry
doesn’t need the help. It already produces
70 percent of the steel consumed in the
U.S., and its executives are richly compen-
sated for it.
Domestic steel output is also near an
all-time high, despite a large reduction
in the sector’s workforce since its peak in- As the Commerce Department’s own
January 2018 report shows, that decline in
jobs predates the competition from China
and is mostly the result of innovation and
industry consolidation.
Ross isn’t the only person to claim that
imposing tariffs on a wide array of goods
won’t cause America to suffer that much.
Some argue that a 25 percent import tax
on $34 billion worth of Chinese goods is
a drop in the bucket compared to our $
trillion economy. But that’s a bogus justifi-
cation—international trade is less than 20
percent of U.S. gross domestic product, and
trade with China amounts to just 3 percent.
So yes, the economy-wide effects of import
taxes are both undeniably negative and
undeniably small when measured against
our giant economy as a whole.
What’s not insignificant is the negative
economic effect on industries that rely
on the product being taxed. In 2002, the
U.S. imposed similar tariffs in the name
of protecting America’s 190,000 steel
employees. All it did was allow domestic
producers to jack up the price of Ameri-
can steel. Meanwhile, 200,000 people
lost their jobs in downstream sectors,
with no employment increase in the steel
18 OCTOBER 2018 Photo: Employees walk out of the Mid-Continent Nail Corporation. David Carson/Post Dispatch/Polaris