Last week we discussed that while Trump’s steel and aluminum import tariffs were reportedly conceived mostly to hurt China and force it to reduce its trade surplus with the US, at least in their current iteration they will hardly make much of a dent, as China is not even in the top 10 list of direct steel exporters to the US.
In other words, we summarized “if Trump hopes to punish China (and Russia and South Korea), he will have to try mach harder.”
Meanwhile, in addition to hurting US foreign trade partners, tariffs – which will push the prices of steel and aluminum materially higher – will also have a detrimental impact on US states which are net importers of the two commodities.
According to an analysis by the Trade Partnership, while the tariffs will boost the prospects of US steelmakers, they will have a net negative impact on other US industries. Specifically, economists Joseph Francois and Laura Baughman found that the new policy would increase employment in the US metals industry by 33,464 jobs while at the same time decreasing employment in other industries by about 179,334 jobs, resulting in a net loss of 146,000 jobs.
The majority of these job losses, according to Francois and Baughman, would come from lower-paying industries.
“High-skilled jobs (managers, professionals, technicians and related workers) account for one-third of the net job losses. Low-skilled workers (production workers, machine operators, office workers, administrative workers, sales/shops staff, and farm workers) bear the brunt of the tariffs, accounting for two-thirds of the total job losses.”
Furthermore, other industries would see declines in employment as households scale back their spending in response to higher prices. From the study:
“Consumers have reduced spending power when they are hit by higher costs (of a new car, a new washing machine, etc.) and, for many, lost wages from unemployment. As a result, households pull back on spending; services like education, entertainment and even healthcare are on the front lines of the spending reduction impacts, with additional attendant job losses.”
In other words, as steel and aluminum costs rise, so will prices of items made with those materials. Consumers will then feel the squeeze and buy fewer items, dealing another blow to consumer-sensitive businesses and causing cutbacks.
What does this mean when transposed to the state level? According to an analysis by Deutsche Bank’s Torsten Slok, 15 US states are net importers of steel and aluminum: the chart shows the share of steel and aluminum imports as a share of the state’s total imports. In other words the states shown below would be hit the hardest from Trump’s tariffs, with Louisiana, Connecticut and Missouri expected to suffer the biggest hit.
The irony, as the WSJ’s Nick Timiraos points out, is that 12 of the 15 states listed above voted for Trump.