Almost all economists believe tariffs are bad. They distort prices, create odd incentives, and raise costs for businesses. The most up-to-date research on the current tariff regime backs this up: the incidence has fallen overwhelmingly on U.S. importers and consumers, not on foreign exporters. More tariffs, therefore, only compound the problem.
While the Administration’s broader tariff push has been self-defeating, its expanding tariffs on steel, aluminum, and now copper are especially harmful. In an attempt to solve problems caused by tariffs with more tariffs, the Administration risks creating a cycle in which protection for one industry leads to demands for protection from the industries that use its products.
These tariffs are unusual because steel and aluminum aren’t finished goods, they’re inputs. That is, most people don’t buy either on their own, but use them indirectly in many of the goods they buy everyday. While raising their price may temporarily help domestic steel smelters, the higher prices squeeze every downstream firm that buys steel: refrigerator makers, boat builders, and welders, to name a few. Roughly 80 Americans work in steel-using industries for every person who works in steel-making ones. While a natural fix that solves this problem would be to lift the tariff, the Administration has opted to head in the opposite direction: extend tariff protection to the downstream products too.
Economists have coined a new term for this: “cascading protection.” After Trump’s tariffs on steel and aluminum in his first administration began, those goods got pricier to make domestically and so less competitive. As a result, tariffs were added on other products such as doornails to protect their U.S. manufacturers from products originating in countries without high tariffs on steel and aluminum.
Section 232 of the Trade Expansion Act of 1962 gives the president authority to restrict imports and add tariffs when the imports threaten national security. Although the provision has existed for more than six decades, it was used sparingly before ten years ago, when the Trump Administration revived it as a trade-policy tool by imposing tariffs on steel and aluminum during his first term. In his second term, he expanded use of Section 232, raising the steel and aluminum tariffs to 50% percent and adding a 50% tariff on certain copper products. On August 6, the Administration proposed adding 14 more “derivative” products: aluminum powder, brass-wind instruments, etc. “Derivative” products are those that are made with tariffed products like steel. The scale of the expansion is significant. Last year, the Commerce Department added 407 product categories to the steel and aluminum tariffs, including wind turbines, bulldozers, and even furniture. What started as a tariff meant to protect steel and aluminum producers is increasingly becoming a tariff on the enormous universe of products that use steel and aluminum in some capacity.
A cell phone is a good example. Almost everyone has one, and phones themselves use a combination of aluminum, copper, and steel. Smartphones were exempted from the reciprocal tariffs last year. But following the logic of cascading protection, tariffs on metals might one day provide an inappropriate excuse for a tariff on imported cell phones that contain them.
This risks further hurting American international competitiveness. Tariffs on input materials such as steel, aluminum, and copper raise costs for American firms that use those materials, making their products more expensive in international markets relative to foreign competitors. Tacking on additional tariffs to downstream products may protect those firms in the U.S. domestic market, but it does little to help them compete abroad. When American goods become more expensive, they become less attractive.
As the cascading tariffs are added, the policy is moving increasingly far from its original legal justification. The original steel and aluminum tariffs were imposed under Section 232, a national security provision. Whatever the argument for protecting domestic steel production on national security grounds, that argument becomes increasingly less credible to sustain as protection moves toward products that are made further and further downstream, ranging from upholstered furniture to tubas. As tariffs cascade throughout the economy, more and more of the private sector becomes dependent on the government for protection. That’s a recipe for decline. Instead, the United States should attack the problem at its source and remove the tariffs that triggered this problem in the first place.