March 20, 2018 at 5:31 pm - Views: 61 #236
A large part of Trump’s campaign was firing up the industrial workers with promises of taking care of all of the competition from foreign markets. He hasn’t been as gung-ho about it in his first year of presidency, but year two he started talking about a 25% tariff on steel imports.
His idea is that by lowering competition for steel, or raising the price of steel from other countries, he would ensure the dominance of steel companies in the USA.
Some people go with the “trade war” argument, where they say other countries will also start tariffs on all of our exports, which will lead to a total economic loss for the world. However, instead let’s talk about what these tariffs would do even if there were no tariffs in response to ours.
When you raise the price of a good artificially, you create a market inefficiency.
Currently the only reason to buy steel from other countries is that it is either cheaper or higher quality. Typically when you talk about industry in the USA, its the cheapness that we’re looking to buy. When you raise the price of steel from other countries, the market will indeed buy more from the higher priced source in the US as long as it is still a lower price than the newly tariffed source.
However, keep in mind that the only reason prices were so low in the USA was to try to compete with these other countries. So now prices will rise up to the level that competes with the tariffs.
Competition will be lower for purchasers, so the steel company can sacrifice quality and increase their prices even more because there is less consumer choice. This is a side-effect, but not the main inefficiency.
When prices are raised, building projects will cost far more money. Real estate will cost more money across the US, especially factories, warehouses and office buildings. Every business that has metal properties will be required to spend more on that and thus increase the price of goods for the entire nation.
Its better for the entire economy when we can source things cheaper, from people who are more efficient at making steel.
In another worst case scenario, alternate materials might be used for construction if the price of steel is too high and we can find other things to use. Quality may be sacrificed, and the steel industry could lose jobs anyway.
You must be logged in to reply to this topic.