The Trump administration appears set on establishing a tariff on steel and aluminum imports in an effort to “protect” domestic production of the metals. The tax of 25 percent and 10 percent, respectively, is aimed at halting the influx of cheaper metals from China, which the president's supporters claim has cost American jobs.
However, as recently shown in a TPOH post, a new tariff is only going to make many everyday products more expensive for all American consumers, and will likely cost untold thousands of jobs in industries that use steel and aluminum in their products.
Commerce Secretary Wilbur Ross is not convinced, though, and recently took to the airwaves to defend the tariff proposal. In an interview on CNBC, Ross claimed that the tariffs will not have that much of an effect.
"In the can of Campbell's soup [that he bought], there's about 2.6 cents — 2.6 pennies — worth of steel. So if that goes up by 25 percent, that's about six-tenths of one cent on the price of the can of Campbell's soup," he said.
He continued, stating "I just bought this can today at a 7-Eleven ... and the price was $1.99. So who in the world is going to be too bothered by six-tenths of a cent?"
One little issue, as economic scholar Mark Perry makes clear, Ross’ explanation is the equivalent of “legal plunder,” where Americans are taxed for purchasing the products they want, and are pushed into buying something they might not otherwise choose, and at a higher price. Perry says you might be a protectionist …
…if, like Wilbur Ross, you conveniently ignore the fact that the collective cost to US consumers of that legal plunder will be nearly $2 million if every American purchases just one can of soup per year, and $1 billion in higher consumer costs per year if the average American buys 20 food and beverage items per week that are packaged in a can that contains steel or aluminum.
Ross admitted that the tariff is going to cost American consumers money. He undermined his own argument. And this is just one example of an industry that will experience an increase in costs because of the tariff.
Perry points out that the tariff is going to cause job losses, as it has when tried before.
Wilbur Ross … blindly ignore[s] the ugly protectionist math that the Trump tariffs might increase US iron, steel and aluminum producing employment by 33,464 jobs, but will cost nearly 180,000 jobs throughout the rest of the US economy, resulting in an estimated net loss of 146,000 American jobs or more than five jobs lost for every one gained.
A tradeoff of 5 jobs lost for one job gained is hardly a formula for economic success. What other jobs may be lost? Workers at Bemis and Miller-Coors in Wisconsin, for instance, may end up being laid off because of higher resource costs. Governor Scott Walker is urging the president to reconsider his position.
There are numerous industries in the United States that rely on imported steel and aluminum for their products. The lower cost of imported resources enables them to offer their products at a lower cost to us as consumers. Cheaper goods enable consumers to purchase items in other industries, stimulating economic growth right here.
Bad economic policy has very real consequences through lost jobs and higher-priced products. Instead of igniting a trade war, the administration may want to promote the free flow of markets among nations and enable consumers to select from a larger choice of products.