US Steel Tariffs Threaten Domestic Manufacturing

South Korea’s Industry Ministry said on Monday it will respond to the 50-percent tariff on steel products as part of its trade discussions with Washington in order to minimize the impact on industry, Reuters reported.

Canada’s United Steelworkers Union also on Saturday issued a warning, labeling the 50-percent tariffs as a direct attack on Canadian jobs, and demanding an immediate and forceful response from the federal government.

These voices of opposition clearly show that the US plan of further raising steel tariffs will not only trigger more trade disputes but also deal a severe blow to the global steel trade landscape. Ultimately, it is the US manufacturing sector that will bear a significant portion of the consequences.

On the surface, the US seems to be aiming to boost its domestic steel industry by increasing tariffs. However, the extent to which that will translate into more production and jobs is highly questionable.

Steel companies’ competitiveness hinges on something far more than import barriers. Factors like market demand, technological innovation and operational efficiency play decisive roles. Relying solely on raising tariffs to limit imports may reduce competition from foreign steel products to some extent, but it fails to fundamentally enhance the competitiveness of US steel companies. On the contrary, it strips them of the incentive to innovate or improve in the market competition.

For years, despite industry protection, American steel output has hovered at about 75 percent of capacity, according to a report from The Economist in March. Even with the imposition of tariffs, this situation has not changed much. For instance, production of both steel and aluminum barely budged after the US imposition of relevant tariffs in 2018, The Economist report noted.

More seriously, far from reviving the industry, the high tariffs will probably inflict collateral damage on downstream manufacturing, further driving up the overall cost of the US industrial chain. As a vital raw material for manufacturing, steel’s price fluctuations influence costs across industries, from vehicles to construction. When steel tariffs rise and the price of imported steel goes up, domestic manufacturers in the US will have to buy raw materials at higher prices from either domestic steelmakers or importers. This will squeeze their profit margins and reduce their competitiveness.

After the US imposed a 25-percent tariff on steel and a 10-percent tariff on aluminum imports in 2018, a study from the University of California, Davis and Harvard University showed that while the tariffs on metal imports did contribute to a small uptick in steel employment, the increased costs driven by the tariffs may have resulted in as many as 75,000 fewer manufacturing jobs. Other studies have similar findings, revealing the futility and self-defeating nature of such protectionism.

In addition, the higher tariff may heighten the risk of triggering retaliatory measures on a global scale. The US is an important export destination for steel from South Korea, the EU, Mexico and Canada. When the US imposes tariffs on other countries’ steel products, those countries are unlikely to passively accept a decision that sacrifices their own economic interests for the benefit of the US. To safeguard their own interests and development rights, they will certainly take corresponding responses. For instance, the European Commission said on Saturday that Europe was prepared to retaliate against US plans to double tariffs on imported steel and aluminum.

In this context, the US attempt to protect its domestic industries may end up making the US manufacturing sector pay a higher price.