President Trump seems determined to raise the price of steel and aluminum. Mr. Trump’s efforts, which would also raise the price of products made from the restricted metals, began in March with threats to place import taxes of 25 and 15 percent on the two metals. Then the Trump Administration began to hand out exemptions to steel-producing allies. Now, however, a White House advisor says that even untaxed imports will be limited.
“The guiding principle of this administration, from the president down to his team, is that any country or entity like the European Union, which is exempt from the tariffs, will have a quota and other restrictions,” White House trade advisor Peter Navarro told steel executives at the American Iron and Steel Institute and the Steel Manufacturers Association. In the meeting, which was reported in Politico, Navarro also said that the protectionist measures “are necessary to defend the aluminum and steel industries from imports in defense of our national security.”
The steelmakers at the meeting heartily approved of Navarro’s comments even though they had hoped for the high tariffs on the imports that compete with their companies. John Ferriola, CEO of Nucor, was disappointed that the Trump Administration had extended its deadline for Canada, Mexico and the European Union to reach deals to avoid tariffs by 30 days.
“Frankly, we're disappointed,” said Ferriola. “We were hoping for the actions to be taken yesterday.”
While fewer countries might be subject to direct tariffs under the new Trump policy direction, the quotas, justified under Section 232 of the Trade Expansion Act of 1962, will probably still please Ferriola and the other steel executives. Both import taxes and quotas on imports have the effect of making imported steel cost more, which is good for American steel companies, but bad for pretty much everyone else.
It is obvious how tariffs raise the price of steel and other imported goods. The American buyers of steel products will pay the price charged by the seller as well as a 25 percent tax. The effect will be that imported steel will cost 25 percent more than before.
The effect of import quotas will not be as drastic, but will still benefit American steel and aluminum producers. The Commerce Department says that total US steel demand is about 105 million metric tons while annual US steel production is about 84 million tons. US steel manufacturers are running at about 72 percent capacity. In theory, if the US steel mills ran at full capacity they could produce enough steel to meet domestic demand. This seems to be the Trump Administration’s target.
The problem for consumers of steel is that increasing capacity will also increase costs. Currently the US imports about a third of its annual steel demand. If imports are restricted, the reduction in the steel supply would mean that the cost of steel will increase. As American companies ramp up production to meet demand, steel prices will eventually stabilize at a higher price.
Higher steel prices will please the steel companies and President Trump, but purchasers of steel and steel products will not be happy. The higher steel prices will translate into higher costs for buildings, cars, appliances and mechanical equipment. The protectionist policy will cost American consumers and businesses money even before our trade partners retaliate.
Originally published on The Resurgent