What does the trade war mean for the average everyday working American? It means higher prices on goods, lost jobs, and economic downturns if the tariffs continue.
President Donald Trump’s steel and aluminum tariffs are particularly concerning for the public. They are bad news for the much bigger sector of the US economy that buys those metals to use them in the goods they produce, according to Quartz.
Take steel, for instance, which is used to make cars, cans, trains, and planes. The pillars of American infrastructure are made of steel, from office buildings to bridges; so are the cranes, excavators, and other machines that build those things reported Quartz. Steel equipment extracts the oil and gas needed to produce all of this stuff. Steel also forms the pipes through which oil and gas flow. US steel-consuming manufacturers dwarf the US steel industry, with more than 6.5 million workers. Facing higher prices for foreign steel under the Trump tariffs, steel consumers have three terrible options. They can absorb the cost and fire workers, they can absorb the cost and lower their profit margin, or they can pass on the cost to customers.
Most companies aren’t going to lower their own profit margin, so the other two options, which affect the American public the most, are the ones that will have the greatest impact and be most likely.
Wilbur Ross, the US secretary of commerce, is trying to convince the American consumer that they won’t be affected by the trade wars all that much. (Tell that to the guy who lost his job…) Ross is using that argument in an attempt to clam the fears of American people. The direct effect of the tax is that most likely that prices will go up only marginally, so he’s right it won’t hit that hard. Unless you already have no disposable income. And Ross forgets something else too.
According to Quartz, Ross’ calculations ignore all the possible indirect effects of a tariff. For example, imagine American companies want to switch from using foreign steel to US steel (which is either the same price or cheaper now and the point of these tariffs in the first place). Can the US steel industry handle the surge in demand? A trade sanction on steel from one of Trump’s predecessors offers some intriguing clues:
In 2002, the Bush Administration hastily slapped a tax on foreign steel, ranging from a 30% tariff on sheets to a 15% tariff on bars and rods. At the time, most steel-consuming manufacturers were small businesses, with less than 500 workers. They were what economists call “price takers”—companies too small to demand that customers pay more, for fear of losing out to the competition. These firms rushed to cancel foreign steel orders and buy up American steel.
By April, a month after the tax went into effect, some producers were rationing sheet steel to buyers because their main plants were near capacity and their rolling mills, booked full through June. The US steel industry went from running at 70% capacity to near 100% in just under two years, supplying over 90% of the market when 80%- 85% was more standard. Ultimately, US steel producers couldn’t meet the demand.
The end result of all that demand-side pressure? Steel prices soared—spot prices for steel were up more than 60% four months later. A producer price index for steel and iron rose 11% over the next year; by the end of 2004, the index had climbed more than 60%. -Quartz
The evidence that tariffs hugely affect the US economy and consumers is there, but it’s still being willfully ignored.