White House Should Rethink $9.5 Billion Steel and Aluminum Tax Hike

Important note: this post has been updated in light of developments that the White House is planning on moving forward on new tariffs.

President Trump recently announced plans to impose new global taxes of 25 percent on steel imports and 10 percent on aluminum imports under Section 232 of U.S. trade law. If he follows through, the double-digit taxes would be even higher than the Commerce Department requested earlier this year.   Based on 2017 import levels, a 25 percent steel tax and a 10 percent aluminum tax would represent a tax increase of up to $9.5 billion. According to U.S. Geological Survey data, firms and workers in the transportation, construction, and packaging sectors would be especially hard-hit.

Section 232 trade barriers are intended to protect U.S. national security. But restrictions on steel and aluminum imports would weaken many industries that are critical to U.S. security. Specifically, higher steel and aluminum prices would impose new costs on critical infrastructure sectors like transportation, manufacturing, agriculture, and energy. New trade restrictions would simply represent the government picking winners and losers in the U.S. economy.

The Trump administration has worked to make the United States “open for business” by cutting taxes and regulations. New trade taxes would run counter to President Trump’s efforts to attract new job-creating investment in the United States. Historically, restrictions on inputs like steel for appliance makers and sugar for candy manufacturers have caused U.S. companies to relocate abroad.

Taxes on imported inputs hurt downstream U.S. manufacturers and jeopardize jobs. Unless we want to raise costs and push steel- and aluminum-dependent businesses overseas, the right tariff is zero.

Although it has been suggested that U.S. steel and aluminum manufacturers have been “decimated” by unfair trade, the market value of the largest U.S. steel and aluminum producers has roughly doubled over the last five years.

New tariffs would be self-destructive. Trade sanctions are often used as a tool to punish rogue states, but the industries that rely on steel and aluminum, and the American consumers to whom they sell, are not a rogue state in need of punishment. Imposing punitive measures would be self-destructive and misguided.