Economic impact of steel and aluminum tariffs will be quite minor

The Trump administration recently announced that it would impose tariffs of 25 percent on steel imports and 10 percent on aluminum imports from all countries except Canada and Mexico. Despite the fact that these tariffs affect only a narrow sliver of the U.S. economy and are quite modest in size, many commentators have claimed that they will have an outsized impact. Critics point to a recent study by Joseph Francois and Laura Baughman of The Trade Partnership, which claims that the tariffs would result in a net loss of 146,000 jobs. In a new report, EPI Director of Trade and Manufacturing Research Robert E. Scott explains why the actual economic impact of the tariffs will be quite minor, and why Francois and Baughman’s study should be treated as an outlier and not as a guide to policy decisions.

Scott argues that the Francois and Baughman results are driven overwhelmingly by a nonstandard modeling assumption. Relaxing this assumption and bringing the Francois and Baughman model in line with the vast majority of trade policy modeling reduces their estimate of job losses by roughly 97 percent—dropping the estimated number of jobs lost from 146,000 to under 5,000.

“There is no credible evidence that these tariffs could drag on growth in demand anywhere near enough to generate employment losses as large as the authors report,” said Scott. “Policymakers should ignore hyperbolic claims, when the vast majority of research shows the overall economic impact of these tariffs will be quite minor, while helping to shore up a critical industry.”

U.S. Tariffs May Add 19,000 Steel and Aluminum Jobs, Group Says

U.S. tariffs on aluminum and steel imports will add thousands of jobs at domestic producers, offsetting labor losses in other industries, while economic growth will slow by a tiny percentage, according to the Coalition for a Prosperous America.

The study is from the nonprofit organization, which has supported the U.S. administration’s skepticism toward free trade. The group estimates President Donald Trump’s 25 percent tariff on steel imports and 10 percent tariffs on aluminum will add about 19,000 jobs, making job losses downstream and in other parts of the economy negligible. The impact would hit the economy by $1.4 billion, or 8/1000th of 1 percent of U.S. gross domestic product, the organization said.

“The tiny tiny decline in GDP is a result of these tariffs in the medium term,” Jeff Ferry, research director for the Coalition for a Prosperous America, said in a telephone interview. “In the longer term, I would anticipate that the effect of tariffs are positive because a longer-run analysis shows what happens to steel and aluminum industries as a result: additional production, revenue, hiring and investment.”

The study comes as many forecasts say the controversial import tariffs would largely hurt downstream sectors of the economy that use raw steel and aluminum to make consumer products such as automobiles and beverage cans. Harbor Intelligence said on March 1 that Trump’s aluminum tariffs would boost production jobs by about 1,900, but 23,000 to 90,000 U.S. manufacturing job will be lost.

CPA Study Shows Steel, Aluminum Tariffs Have Minimal Effect on US Economy

Research finds slight decline in GDP, no job loss

Washington. A new study from the Coalition for a Prosperous America (CPA) finds that the effects on the US economy of the recently announced Section 232 steel and aluminum tariffs would be nearly undetectable, with the net job impact approaching zero. Gross domestic product would decline by only eight one-thousandths of one percent.

CPA’s study projects a net gain of 19,000 jobs in steel- and aluminum-producing industries. This significant increase in good-paying manufacturing jobs will almost offset any job losses in downstream industries using steel and aluminum. In the longer term, additional production, revenue, jobs, and investment in the steel and aluminum industries will likely boost the economy.

“Our research shows that the likely, actual effects of these tariffs on the US economy will be minimal in the medium term,” said CPA Research Director Jeff Ferry. “The domestic price increases of steel and aluminum will be far less than the level of the tariffs, and the gains from increased production and utilization in the two industries are likely to be positive in the longer term.”

The steel and aluminum tariffs were announced recently for national security reasons under Section 232 of the Trade Expansion Act of 1962, a move that CPA supports. As Michael Stumo, CEO of CPA, noted, “Steel and aluminum are vital building blocks for any strong, independent country’s industrial strength. The national security benefits of having profitable growth and hiring in these industries is clear. We now see that speculation about costs was overblown. However, the administration should still expand protection to downstream steel and aluminum users. If we are to go beyond national security to eliminating the trade deficit for economic growth, a comprehensive suite of tools to include tariffs, competitiveness policy and exchange rate management should be developed.”

Some past studies have incorrectly suggested that the tariffs could harm economic growth and cost more jobs. The Trade Partnership, for example, has claimed that the Section 232 tariffs could lead to approximately 145,000 lost jobs. While both CPA and the Trade Partnership used Global Trade Analysis Project (GTAP) data in their research, the Trade Partnership’s work wrongly assumes substantial unemployment in the US economy—a point inconsistent with the current 4.1 percent unemployment rate. Ferry says the Trade Partnership study appears to be based on assumptions that hold fixed, certain economic variables, like wages, that force a high and unrealistic job loss figure.

Ferry said, “The fact that 97 percent of the Partnership’s claimed job losses occur in the services industries points to deep and systemic flaws in their modeling assumptions. Because we simply corrected the model to be in line with the reality of full or nearly full employment today, we are very comfortable with our findings that the projected job losses are unlikely to occur.”

In its research on the national security tariffs, CPA discovered that similar tariffs imposed by President Bush in 2002 were preceded by similarly alarmist studies forecasting job losses. Those studies were shown to be incorrect. Instead, steel-using industries subsequently added 228,000 jobs in 2002.

Read more about CPA’s new research on the economic impacts of steel and aluminum tariffs imposed under Section 232.