One of President Trump’s campaign promises was to revive the manufacturing sector in the US to create jobs, and to do so he resorted to protectionism. On March 1, 2018, President Trump announced 25% tariffs on imported steel and 10% tariffs on imported aluminum. In an unprecedented move, President Trump and the Department of Commerce invoked section 232 of the Trade Expansion Act of 1962 to impose trade restrictions on the steel industry (Bown, 2018). There are a number of reasons that made Trump administration to impose the heavy tariffs, but the U.S. steel and aluminum industries are not infant industries.
Employment in the American steel industry has fallen from 650,000 workers in the 1950s to 140,000 workers today (McBride, 2018). Many mills have been closed, and American steel and aluminum manufacturers believe that the primary cause of their woes is the importation of subsidized steel and aluminum from China and other nations. The US manufacturers have lobbied for high tariffs to protect them from the effects of ‘dumping,’ and President Trump is on their side. The US government implemented high tariffs with the aim of reviving the failing Steel and aluminum industry.
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Free trade and trade protectionism have advantages and disadvantages to a nation’s economy. Protectionism enhances the vibrancy of the domestic economy. The 25% tariff on steel imports was meant to reduce competition from cheaper imports and strengthen the domestic steel industry. Strengthening the local industry will create jobs and develop the local economy. Protectionism is also used to protect infant industries to enable them to grow at acceptable rates without undue pressure from foreign firms. A notable disadvantage of protectionism is that consumers will pay more. Protectionism is against the system of competitive pricing, and domestic firms are free to raise their prices without improving quality of products. According to McBride (2018) protectionism ends up hurting the local industry in the long run. Other nations will put in place higher tariffs on their imports, and this will affect the country that first initiated protectionism.
Alternatively, free trade is advantageous because it allows for international specialization. Different countries can produce goods that give the comparative advantage. Free trade also increases world production and world consumption as businesses have access to a global market. It is also beneficial to consumers as they have access to a broader choice of products at the best price. Free trade has its downsides too. First, it can create excessive dependence on foreign nations. Some economies become too dependent on others such that consumers will lack necessary commodities in case of a conflict. Free trade can be a stumbling block to the development of domestic industries; a reason used by Trump administration to justify 25% tariffs on steel imports.
The 25% tariff on steel and 10% tariff on aluminum imports will have economic impacts on the U.S. economy. According to Carey (2018), the protectionist tariffs will lower the profit of domestic companies manufacturing pickup trucks to canned food because they will buy steel and aluminum at a higher price. The domestic steel and aluminum industry cannot meet the local demand, and increasing tariffs implies the local industries will pay more. Domestic manufacturers of steel and aluminum will make more money while the consumers will make less money. Employment in the steel and aluminum industry will grow at the expense of many other industries. Large-scale companies in the auto and construction industries in the U.S. spend hundreds of million in imports, and they will pay more. The consumer is not interested in absorbing the extra cost, and companies will have to make the hard decision of either making due with declining profits or losing customers if they increase prices. In the long run, the effects will spill to the country’s GDP. Carey (2018) asserts that steel and aluminum tariffs are less likely to have a noticeable impact on U.S. GDP, but it is the first step in a trade war. U.S. trade partners are in the process of re-evaluating their trade policies as a reaction to U.S. protectionist policy.
I am in favor of free trade since we are in the age of globalization. Using the example of U.S. steel and aluminum imports, the U.S. was importing most of the steel and aluminum from Canada and Mexico, the two countries that U.S. has a multi-lateral deal called NAFTA (McBride, 2018). The U.S. willingly imported steel and aluminum so that it can specialize in high-value industries such as the auto industry, and yet it exports more products to Mexico and Canada. Free trade enables nations to concentrate in industries that give them a competitive advantage in comparison to other countries. Many nations rely on each other to meet their needs, and coming up with protectionist tariffs not only denies the consumers access to products, but it has the potential to damage peaceful relations between nations. Free trade should be allowed to flourish as it is beneficial to all nations, but the nations are free to use protectionist measures for infant and critical industries.
References
Bown, C. (2018, Mar. 1). Trump has announced massive aluminum and steel tariffs. Here are 5 things you need to know. Washington Post . Retrieved from: https://www.washingtonpost.com/news/monkey-cage/wp/2018/03/01/trump-has- announced-massive-aluminum-and-steel-tariffs-here-are-5-things-you-need-to- know/?noredirect=on&utm_term=.dff7cfd6a10b
Carey, N. (2018, Mar. 3). The financial impact of Trump's tariffs on steel and aluminum. Reuters. Retrieved from: https://www.reuters.com/article/us-usa-trade-explainer/the- financial-impact-of-trumps-tariffs-on-steel-and-aluminum-idUSKCN1GE2WK
McBride, J. (2018, Mar. 8). The Risks of U.S. Steel and Aluminum Tariffs. Backgrounder. Retrieved from: https://www.cfr.org/backgrounder/risks-us-steel-and-aluminum-tariffs
