Tariffs imposed under the Trump administration on steel and aluminum in 2018 represented a major shift in trade between the U.S. and the rest of the world, with impacts on imports and exports of metal at the forefront.
Meanwhile, although the U.S. and China recently reached a Phase One trade deal that saw the U.S. not go forward with a planned additional $160 billion in tariffs, tariffs on approximately $370 billion in Chinese goods remain in place.
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The National Bureau of Economic Research recently released a report detailing the effects of recent U.S. tariffs. The report, “Who’s Paying for the US Tariffs? A Longer-Term Perspective,” is authored by Federal Reserve Bank of New York researcher Mary Amiti and professors David Weinstein of Columbia University and Stephen Redding of Princeton University.
Analyzing data from 2018, the bureau explained that several studies and papers have demonstrated that recent U.S. tariffs have been “passed on entirely to U.S. importers and consumers.” The study’s authors said the findings are unexpected considering trade theory has long underscored that tariffs implemented by a major country should lower foreign prices.
Relying on another year of data, including significant escalations in the trade war, the report’s authors established that U.S. firms and consumers almost entirely bear the brunt of the U.S. tariffs.
The response of import values to the tariffs increases “in absolute magnitude” over time, the report states, which the authors explained is consistent with the concept that it takes time for firms to reorganize supply chains.
“We find heterogeneity in the responses of some sectors, such as steel, where tariffs have caused foreign exporters to drop their prices substantially, enabling them to export relatively more than in sectors where tariff passthrough was complete,” the report’s authors stated.
The report also said that among goods that are continuously being imported, a 10% tariff is associated with roughly a 10% drop in imports for the first three months. However, the study’s authors stated that the “elasticity doubles in magnitude in subsequent months.”
While the tariffs were announced in 2018, many of them were applied in October, which the authors suggest indicates that the tariffs are just beginning to have their full effects on U.S. import volumes.
U.S. importers and consumers may be disproportionately burdened by the cost of the tariffs, but the bureau’s report states that this may not be reflected in the steel industry. The European Union and countries such as South Korea and Japan are enduring nearly half the price tag for U.S. steel tariffs, the report said.
“This is likely good news for U.S. firms that demand steel, but bad news for workers hoping that steel tariffs will bring back jobs,” the authors noted. “Indeed, the fact that foreign steel producers have lowered their prices in response to U.S. tariffs may help explain why U.S. steel production only rose by 2 percent per year between the third quarter of 2017 and the third quarter of 2019 despite 25 percent steel tariffs.”
The Federal Reserve Bank of Dallas released a report in April 2018 explaining that tariffs on steel and aluminum imports were likely to reduce the U.S. gross domestic product by a quarter percent.
As of 2016, the U.S. steel industry employed about 139,800 workers, according to the Dallas Fed.
The analysis described a relatively small impact to be expected from the 25% tariff on most steel imports and a 10% tariff on most aluminum.
“If political tensions escalate and countries impose stiff, prohibitively high tariffs on the U.S., leading to a series of retaliatory moves, the effects can become much larger,” the April 2018 analysis concluded.
A March 2019 report from the National Bureau of Economic Research, “The Return to Protectionism,” stated that imports from countries where the U.S. applied tariffs fell 31.5%, while U.S. exports that other countries targeted were cut by 11%.
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Tariffs targeting the U.S. focused primarily on industries like agriculture, the report’s authors found.