There’s no doubt that President Donald Trump can’t stand our current trade situation. In fact, he’s rallied on what he terms ‘unfair trade practices’ since he first announced he was running. He’s mentioned China numerous times in his speeches, a country known for ‘dumping’, a practice used to grab a greater share of a particular market.
It’s no surprise to anyone paying attention that Trump would slap tariffs on imports to get the American economy rolling again. That’s exactly what he did this past week, adding a 25% tax on all imported steel and 10% to aluminum. The purpose of this tariff has a noble cause: to help give a boost to the American steel industry.
The way it works is simple. American steel costs more money to produce, considering we pay workers a fair wage compared to countries like China. If China can make steel and sell it cheaper, then industries will always choose Chinese steel over American. This hurts portions of the country that rely on the steel industry to survive.
By imposing a tariff on foreign steel, it becomes less affordable to American companies who have no choice but to go back to using American steel for creating everything from cars to machines to building materials. If more industries switch back to buying steel from the U.S., the increased demand means more jobs.
“I want to bring the steel industry back into our country. If that takes tariffs, let it take tariffs, OK? Maybe it will cost a little bit more, but we’ll have jobs,” President Trump said this week. The problem is, what should’ve been good news for the American steel industry, was bad news for the stock market, which plunged more than 500 points on March 1st.
American Steel is Still Expensive
While no one is against a move that would potentially boost jobs and revive a dying industry, there are several reasons why Wall Street isn’t happy about this move. The first is the cost of American steel. Making foreign steel 25% more expensive does nothing to lessen the cost of industries now switching back to U.S. produced steel.
This means the price of steel is about to go up, and the consumers will bear the brunt of it. President Trump wants what he calls “free, fair, and smart trade”, but pushing the burden back on consumers might not be the smart way to go. This also threatens the stability of other industries.
Usually when a country imposes a strict tariff, those countries fight back with tariffs of their own. There’s nothing that will stop China from retaliating, and the threat of a trade war is too much for an economy that is still recovering. No one knows where this will go, but regardless of what happens, you can expect steel prices to rise over the next few years.