Trump’s Steel Tariffs Start Cascade of Downstream Pain

Have backfired in a spectacular way

More expensive inputs made US steel-users less competitive and put them in trouble, which forced them to reduce orders, so the steelmakers were actually harmed by tariffs supposedly enacted to protect them. Or as economists figured out a long time ago every intervention in the market distorts it and necessitates yet further intervention.

Related:


On Jan 24, Trump issued a proclamation on further steel and aluminum tariffs because the initial tariffs backfired.

Cascading Protection

With little fanfare or reporting, Trump issued a Proclamation Adjusting Imports of Steel and Aluminum Products.

I picked this story up courtesy of a Tweet Thread by Chad P. Bown.

On Friday night, Trump admitted that US companies whose costs he has raised – by imposing tariffs on the metals they need – are no longer competitive with foreign firms. Because of his policies, they too must now be shielded from trade…

Trump announced he was expanding the product coverage of his national security tariffs on STEEL and ALUMINUM to include “derivative” goods that use steel and aluminum as an input – eg, steel nails or aluminum bumpers.

Imports of those “derivative” products have increased, in part because US companies have had their COSTS go up because of Trump’s tariffs on steel and aluminum. In Econ 101 terms, the cost increase shifts the US supply curve (DS) to the LEFT. That makes imports INCREASE.

Economists call this “cascading protection.” Trump’s tariffs on inputs lead to higher costs for US companies making the downstream products, and this results in a clamoring for ADDITIONAL trade protection for those products. This was all completely predictable.

Results Speak For Themselves

  1. GDP Internals show business investment contraction: Ignore the Headline, Real GDP is Much Worse Than It Looks
  2. How to Buy an Election – Durable goods orders excluding defense were -2.5%Of Durable Goods Orders (and How to Buy an Election)
  3. Freight shipments collapse: Cass Year-Over-Year Freight Index Sinks to a 12-Year Low

Cheerleader Silliness

Meanwhile, people cheer Trump for shrinking imports. That was the biggest boost to 4th-quarter GDP.

However, were it not for huge government spending and absurd measures of inflation, it would be clear there is nothing to cheer about. GDP would have been 0.22% (see link number 1).

And by the way, imports always decline in recessions.

Addendum – Updates From Chad Bown

Source: Mish Talk

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