General Finance

The Effects of 232 Tariffs on the Economy

The United States significantly relies on foreign steel and aluminum for the day-to-day production of manufactured goods. These metals are vital raw materials for manufacturing companies in the United States. About 90% of aluminum used in the US comes from other countries. Manufacturing, oil, and utility industries use these mentioned materials for making pipelines, wires, beams, cans for food and drinks, and much more.

To some Americans, March 23rd was quite a dim day in the world of trade. The United States applied a 25% tariff on steel and a 10% tariff on aluminum. However, some US trade partners are exempt from these tariffs, such as Argentina, Australia, and Brazil. On May 23rd, South Korea also received a permanent exemption on steel tariff. The Trump administration stays open to altering or removing the tariffs for individual nations if it does not threaten national security.

The Coalition for a Prosperous America (CPA) projected a net gain of about 19,000 jobs in the steel and aluminum industries, but a job saved or gained in one industry could be offset by job losses in another sector. In the long-run, added production, revenue generation, and investment in steel and aluminum industries may boost the economy.

Temporarily, these tariffs will positively affect the cost of everyday items made with aluminum. Beer cans, baseball clubs, and other items will get more expensive, assuming the companies that manufacture them resolve to pass the cost of the tax to consumers.

The increased tariff has a negative turn on some American companies, though. Foreign competitors went from being competition to having an easier chance of winning projects at their expense. This is because they can import raw steel without a tariff and buy it almost 40% cheaper than an American company buying from their own domestic distributor.

In history, there was an aggravation of the economy in the US when Senator Reed Smoot and Representative Will Hawley sponsored an act that raised tariffs on hundreds of goods in June of 1930. Duties were elevated with the intent of arresting the Depression, thereby protecting American businesses from foreign competition. That sole act instead assisted in elongated the downturn. Several US trading partners reacted by raising their own tariffs, which led to a cessation of world trade.

There has been about a 50% increase in the price of steel by some manufacturers since the tariffs were announced. Many of them raised their prices due to the fact that their product is a low-margin item. The US steel producers are gaining from a greater output, whereas end users, households, and other businesses are at the losing end. However, the government is likely to gain from the tariff revenue, which in turn probably gets distributed across the national economy.

Tariff increases, more often than not, have shown not to be favorable to the community, famers, or businesses residing in the country. However, times could be changing. Prices will increase as companies switch from cheap imported products to more expensive domestic products. We might expect to see these increased prices passed down to the consumers. If you would like to learn more about trade and tariffs, check out A Splendid Exchange: How Trade Shaped the World by William J. Bernstein.

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1 thought on “The Effects of 232 Tariffs on the Economy”

  1. So this is the reason why I can’t find deals this summer on soda cans and seltzer water. Grocery markets in the past always had sales 5 cases for $10, this year the best sale is 3 cases for $9.

    Liked by 1 person

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