Matthews

Merrill Matthews

President Donald Trump’s trade war is a little over a year old, so it’s a good time to review its impact — especially since he is rattling the steel-tariffs sword once again.

The president announced in March last year that he would be imposing a 25 percent tariff on foreign-made steel and 10 percent on aluminum. While China and the European Union were the initial targets, Trump later included Canada and Mexico. Steel tariffs remain on all of them.

Remember that a tariff is a tax on consumers and industries in the country imposing the tariff. So when the U.S. imposes a tariff on foreign-made steel, it’s Americans who pay the price — in two ways.

If U.S. companies buy foreign-made steel — and in many cases they have to, either because U.S. steel manufacturers don’t make the specific type of steel or they don’t make enough of it — they must pay the 25 percent tariff.

The Congressional Budget Office estimates that tariffs on all imports accrued $41 billion to the federal government in 2018.

However, when tariffs are imposed on foreign-made steel, U.S. steel manufacturers raise their prices — because they can. And that also costs companies that buy U.S.-made steel.

Of course, tariff revenue isn’t huge when compared to the $3.33 trillion total federal revenue for 2018. But tariffs are kind of like company layoffs. Many employees may be largely unaffected when a company cuts its workforce, but others are devastated.

Companies that use steel, whether foreign or domestic sourced, have seen their costs rise significantly. The oil- and natural gas-producing industry is one of those bearing the brunt of the tariffs.

Steel is used in drilling rigs, it’s used in the pipelines that carry crude oil and natural gas to refineries or ports for export. And it’s used in the refineries that turn crude oil into gasoline and other petroleum liquids, as well as plants that turn natural gas into liquefied natural gas for export.

The president is also making it more expensive for pipeline companies to buy the pipeline-grade steel they need for their projects. Pipelines require a specific type of steel that is primarily made by three foreign-based companies. So far, U.S. steel manufacturers haven’t stepped up to fill the need.

U.S. energy companies import an estimated 77 percent of the steel used in pipelines, at a cost of $2.2 billion a year. This means a 25-percent tariff adds roughly $550 million to the cost of building and maintaining the nation’s energy infrastructure.

The administration is also considering steel quotas. But those could do even more harm to U.S. consumers and businesses.

Ironically, the president has been pushing oil-producing countries to increase production so as to keep the price of gasoline cheaper, especially now that the administration has expanded sanctions in an effort to stop all Iranian oil exports. Another way to achieve that goal is to eliminate the steel tariffs, at least on our longtime allies.

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.

This Week's Circulars

Recommended for you