President Trump is threatening to impose tariffs on steel and aluminum from Brazil and Argentina again. As we all know, and Trump doesn’t, tariffs are a bad idea. But what makes it worse here is that U.S. tariffs on the import of steel are the actual poster child for how bad the idea is. We’ve done this in modern times and found out that it’s a howlingly bad idea.
Perhaps having Robert Lighthizer, whose private legal career tended to be arguing in favor of steel import tariffs, as the U.S. trade representative wasn’t all that good an idea then?
The stated reason for the imposition of the tariffs is that the two countries have been lowering the value of their currencies. This makes their exports cheaper. To anyone competent in thinking through the effects of trade, that’s great for the United States.
We get cheaper steel; we’re richer!
As it happens, the countries haven’t been attempting to manipulate their currencies down, they’ve just fallen — Argentina’s largely on the grounds that they’ve just elected the local equivalent of Democratic Vermont Sen. Bernie Sanders. This does make people poorer; thus the currency falls. Even so, this still makes things cheaper for Americans.
The unstated reason is that Trump’s tariffs on China have led to Chinese tariffs on U.S. exports. Largely farm goods — and who has leaped into supplying China? Yes, you guessed it, the farmers of Argentina and Brazil. So, the steel makers of those countries and all American consumers are to be punished because some overseas farmers didn’t get hit with tariffs in revenge for Trump’s tariffs on China?
This makes about as much sense as most political interventions into economics, which is to say, not much.
What makes it all so much worse is that we’ve been here before. Some nasty foreign businessmen decided to make us all richer by selling us cheap steel back in 2002. President George W. Bush imposed import tariffs. The results weren’t pretty. The point is that steel is an input into other processes; it’s what economists call an “intermediate good.” We like inputs being cheap because it means that making things out of them is cheaper. So, if we make inputs more expensive, then the things made from them become more so; thus the people making the more expensive things lose their jobs as we buy less or fewer of them.
We actually found out that more people lost their jobs as a result of the tariffs than the entire number of people who worked in the steel industry. This is what happens when you play games with input prices. Other estimates put the cost of each steel job saved at $800,000. That is, we could have paid each of them to stay home and do nothing and been three-quarters of a million better off per job “saved.”
Tariffs are simply a bad idea both in theory and practice. They make us poorer, which isn’t the point of this economic game at all.
But then, well, we’re in an election period, aren’t we? So, economic interventions aren’t going to be made on the basis of good economics but mere political calculation.
Which brings us to the most worrying thing of all: of the people running to be president, Trump is the least interventionist. Everyone else insists there should be more politics in economic decisions. Lord, help us all.
Tim Worstall (@worstall) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all of his pieces at the Continental Telegraph.
