Skip to main content
Menu

Main navigation

  • About
    • Annual Reports
    • Leadership
    • Jobs
    • Student Programs
    • Media Information
    • Store
    • Contact
    LOADING...
  • Experts
    • Policy Scholars
    • Adjunct Scholars
    • Fellows
  • Events
    • Upcoming
    • Past
    • Event FAQs
    • Sphere Summit
    LOADING...
  • Publications
    • Studies
    • Commentary
    • Books
    • Reviews and Journals
    • Public Filings
    LOADING...
  • Blog
  • Donate
    • Sponsorship Benefits
    • Ways to Give
    • Planned Giving

Issues

  • Constitution and Law
    • Constitutional Law
    • Criminal Justice
    • Free Speech and Civil Liberties
  • Economics
    • Banking and Finance
    • Monetary Policy
    • Regulation
    • Tax and Budget Policy
  • Politics and Society
    • Education
    • Government and Politics
    • Health Care
    • Poverty and Social Welfare
    • Technology and Privacy
  • International
    • Defense and Foreign Policy
    • Global Freedom
    • Immigration
    • Trade Policy
Live Now

Cato at Liberty


  • Blog Home
  • RSS

Email Signup

Sign up to have blog posts delivered straight to your inbox!

Topics
  • Banking and Finance
  • Constitutional Law
  • Criminal Justice
  • Defense and Foreign Policy
  • Education
  • Free Speech and Civil Liberties
  • Global Freedom
  • Government and Politics
  • Health Care
  • Immigration
  • Monetary Policy
  • Poverty and Social Welfare
  • Regulation
  • Tax and Budget Policy
  • Technology and Privacy
  • Trade Policy
Archives
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009
  • January 2009
  • December 2008
  • November 2008
  • October 2008
  • September 2008
  • August 2008
  • July 2008
  • June 2008
  • May 2008
  • April 2008
  • March 2008
  • February 2008
  • January 2008
  • December 2007
  • November 2007
  • October 2007
  • September 2007
  • August 2007
  • July 2007
  • June 2007
  • May 2007
  • April 2007
  • March 2007
  • February 2007
  • January 2007
  • December 2006
  • November 2006
  • October 2006
  • September 2006
  • August 2006
  • July 2006
  • June 2006
  • May 2006
  • April 2006
  • Show More
March 10, 2021 2:21PM

By Supporters’ Own Standards, the Steel Tariffs Haven’t Been “Effective”

By Scott Lincicome

SHARE

In an interview with MSNBC last Thursday, new Commerce Secretary Gina Raimondo spoke highly of the "national security" tariffs that President Trump placed on steel and aluminum imports in 2018 under Section 232 of the Trade Expansion Act of 1962. According to Secretary Raimondo, "[t]he data show that those tariffs have been effective." As my colleague Simon Lester noted at the time, it's not entirely clear whether Raimondo's opinion was specific to China or the Section 232 tariffs more broadly, and she amplified the confusion by immediately following her remark with a note that the Biden administration is still reviewing the tariffs before deciding what to do with them. Nevertheless, there's little to suggest that the tariffs have been "effective" - even by tariff supporters' own benchmarks.

In a new paper, my colleague Inu Manak and I address the numerous legal problems raised by Section 232 - problems no one really noticed until Trump started abusing it with his metals tariffs and other actions - and explain why the law should be repealed or, at least, significantly reformed. I also detailed the main economic arguments against the Section 232 tariffs in a recent policy analysis on manufacturing and national security, showing how the tariffs served as "a powerful example of the perils of American security nationalism":

Numerous studies have documented the tariffs’ high economic costs for U.S. consumers (particularly manufacturing firms). In particular, the tariffs caused higher steel prices that in turn hurt other U.S. manufacturers in terms of higher input costs, lower exports, and lost competitiveness at home and abroad; created an opaque, costly, and uncertain “exclusion” bureaucracy, under which more than 100,000 requests have been filed by U.S. manufacturers seeking relief; resulted in approximately 75,000 fewer manufacturing jobs than would have otherwise existed in the absence of the tariffs; depressed global demand for steel (thereby dampening prices); bred global market uncertainty, which hurt investment in manufacturing; and caused numerous U.S. trading partners to retaliate against American exporters.

At the same time, the steel tariffs were found to have a minimal impact on U.S. steelworker jobs and to do nothing to address global steel overcapacity—the primary long‐​term driver of the U.S. steel industry’s weakened financial position in 2018. Given these and other market dynamics (e.g., steelmakers bringing back inefficient capacity to capture rents and subsequently flooding the U.S. market), industry stocks tanked in late 2018 and early 2019, and steel companies were actually laying off workers and curtailing investments by the end of 2019. In extending the tariffs to downstream “derivative” products in early 2020, the Trump administration tacitly admitted that the steel tariffs had not achieved their primary goal of increasing and stabilizing the industry’s capacity utilization. As one Los Angeles Times story put it, "Trump’s steel tariffs were supposed to save the industry. They made things worse."

As has been widely documented here and elsewhere, the tariffs' harms for U.S. consumers - particularly domestic manufacturers that consume steel and aluminum - are hardly in doubt, and skyrocketing prices are currently undermining the U.S. manufacturing recovery. However, Raimondo's comments indicate that the Biden administration might not care about the tariffs' obvious consumer harms when determining their efficacy. It's thus worthwhile to expand upon that second paragraph above, which generally mirrors the very standards for success that tariff supporters used when the measures were first put in place. For example, the Trump administration identified three main goals in the Commerce Department's Section 232 report on steel imports: (1) to boost domestic producers' capacity utilization above 80% - the level reportedly "necessary to sustain adequate profitability and continued capital investment, research and development, and workforce enhancement" - for an extended duration; (2) by extension, to produce a "a healthy and competitive U.S. industry" in terms of employment, production, and investment; and (3) to reduce the "global excess capacity" - particularly in China - that was allegedly a driving force behind the steel industry's recent troubles.

In each case, data through the start of 2020 (when the pandemic began) show that the steel tariffs provided the U.S. industry with a short-term "sugar rush" but did little to produce a thriving domestic steel industry or curtail global overcapacity. In other words, the tariffs failed on supporters' own terms.

First, the steel industry only briefly achieved that magical 80 percent capacity utilization target after the tariffs were imposed in March 2018. Instead, iron and steel producers' average post-tariff capacity utilization was only slightly above pre-tariff levels and right about where it was before 2015:

Indeed, as noted above, the Trump administration itself admitted that the industry's capacity utilization goal remained unmet when Trump decided to extend the Section 232 tariffs to downstream "derivative" products, blaming this failed objective on the utterly-foreseeable increase in derivatives imports (which, unlike their American competition, weren't forced to consume tariff-affected steel):

The Secretary has informed me that domestic steel producers' capacity utilization has not stabilized for an extended period of time at or above the 80 percent capacity utilization level identified in his report as necessary to remove the threatened impairment of the national security. Stabilizing at that level is important to provide the industry with a reasonable expectation that market conditions will prevail long enough to justify the investment necessary to ramp up production to a sustainable and profitable level.

Next, data on steel industry employment, industrial production, and investment (capital expenditures) show that these metrics did improve a bit following the tariffs' imposition in March 2018, but that these trends were already underway pre-tariffs and the gains soon began to fade in mid-2019, leaving the industry no better off in early 2020 than it was in the early to mid-2010s (right before the oil-price-induced manufacturing "mini-recession" in the United States began in mid-2014):

Based on this performance and the industry's related financials, steel stocks - as shown below using an ETF that aggregates domestic steel company shares - continued their slide through the end of 2019, even as the S&P increased significantly:

Steel Stocks Have Tanked

Big names like U.S. Steel did far worse (resulting in one of the funnier financial TV segments from tariff supporter Jim Cramer).

Finally, the Section 232 tariffs have done absolutely nothing to reduce excess global steel capacity. In fact, Chinese production - in nominal terms and as a share of global production - actually increased between 2018 and 2020:

Thus, even if Secretary Raimondo was speaking about only the Section 232 tariffs on Chinese steel, they still haven't been effective - an unsurprising conclusion, given that China was not even a top-10 import source for steel when the Section 232 tariffs were being considered.

Overall, none of the data above definitively support Raimondo's conclusion last week about the steel tariffs' efficacy. Hopefully she'll embrace this reality once the Biden administration completes their review.

Related Tags
International, Trade Policy, Manufacturing and Industrial Policy

Stay Connected to Cato

Sign up for the newsletter to receive periodic updates on Cato research, events, and publications.

View All Newsletters

1000 Massachusetts Ave. NW
Washington, DC 20001-5403
202-842-0200
Contact Us
Privacy

Footer 1

  • About
    • Annual Reports
    • Leadership
    • Jobs
    • Student Programs
    • Media Information
    • Store
    • Contact
  • Podcasts

Footer 2

  • Experts
    • Policy Scholars
    • Adjunct Scholars
    • Fellows
  • Events
    • Upcoming
    • Past
    • Event FAQs
    • Sphere Summit

Footer 3

  • Publications
    • Books
    • Cato Journal
    • Regulation
    • Cato Policy Report
    • Cato Supreme Court Review
    • Cato’s Letter
    • Human Freedom Index
    • Economic Freedom of the World
    • Cato Handbook for Policymakers

Footer 4

  • Blog
  • Donate
    • Sponsorship Benefits
    • Ways to Give
    • Planned Giving
Also from Cato Institute:
Libertarianism.org
|
Humanprogress.org
|
Downsizinggovernment.org