000 per job saved n B u s i n e s s F i n a n c e
The main topic for this week’s discussion is: what are the effects of tariffs, quotas, and other trade barriers on a nation’s economy and, despite their costs, why is so difficult for nations to maintain low trade barriers?
In terms of the effects of trade barriers, we have some recent examples that we have been enacted by President Trump’s administration (and referred to as the ‘Trump Tariffs) and which have been in effect long enough so that there is good evidence about their effects thus far. The Trump Tariffs began in January 2018 with the imposition of a 30% tariff on imported solar panels and 50% on imported washing machines. These were followed in March 2018 by 25% tariffs on imported steel and 10% tariffs on imported aluminum. In the Resources folder for this Week, there are a couple of articles on the effects of the solar panel and washing machine tariffs and you are encouraged to read those (and any others that you find). For example, one finds that the President’s tariffs on washing machines has indeed increased employment in that industry – but at a cost of over $800,000 per job!
However, for our Discussion this week I would like to concentrate on the steel and aluminum tariffs. These tariffs were imposed under the provisions of a law passed in 1962 that gives the president power to impose tariffs (or decrease tariffs) on goods critical to the national security of the United States. When these tariffs were first announced, a few countries, including Canada, Mexico, and the European Union, were granted temporary exemptions. However, in June 2018, US Commerce Secretary, Wilbur Ross, announced that the tariffs would apply to steel and aluminum imports from Canada, Mexico, and the EU, three of our largest trading partners. The steel and aluminum tariffs were eventually lifted in June, 2019. Overall, these tariffs on steel and aluminum has been significant enough and have been in effect long enough so that their effects on the overall economy are beginning to be evident. We see that while there are benefits concentrated in the domestic steel and aluminum industries, there are larger costs to the broader economy. One way of illustrating this can be found in some of the articles in the Resources folder on recent studies about the cost (per job) of increasing employment in the US via trade protection. The estimates of the costs of increasing US employment in the steel and aluminum industries through the use of steel and aluminum tariffs are similar to those cited earlier for the tariffs on washing machines (over $800,000 per job saved n the US). Feel free to supplement the articles found in the Resources folder with your own research.
In general, there is widespread agreement among economists that trade protectionist measures such as these have overall negative economic effects. The question at hand is the disconnect between rationale for freer trade derived from economic thought (including the major concepts we’ve learned about in this course) and the rationale for increased trade barriers advocated by President Trump’s Administration. What is your view of the pros and cons of imposing these tariffs on steel and aluminum? You may be for or against their imposition but it is vital that you support your argument with sound economic reasoning.