X

Steel & Aluminum Tariffs Produce Minimal Impact on Jobs, GDP

March 20, 2018

By Jeff Ferry, CPA Research Director

CPA Economic Model Refutes Alarmist Trade Partnership Study A Coalition for a Prosperous America (CPA) modeling study of the impact of the Section 232 tariffs on the U.S. economy shows minimal national macroeconomic impact of the tariffs. The study shows that U.S. GDP would fall by 8/1000s of 1 percent of GDP, or $1.4 billion. Economy-wide net job gains or losses would be negligible as the 19,000 jobs gained in the steel and aluminum sectors would largely offset any job losses in metal–consuming industries. 

On March 1, President Trump announced his intention to adjust the level of steel and aluminum imports by imposing a 25 percent tariff on imports of steel and a 10 percent tariff on imports of aluminum. The tariff was recommended by the Department of Commerce and approved by the President due to the threat to national security arising from the weakened state of the steel and aluminum industries caused by excessive imports. The CPA study finds that the domestic prices of steel and aluminum would rise far less than the tariff rate, due to spare capacity in the U.S. industry and competition Specifically, steel prices are forecast to rise 6.29 percent and aluminum prices just 2.5 percent. These small price increases limit the effect of the tariffs on other sectors of the U.S. economy. The CPA study was carried out using the publicly available GTAP general equilibrium model and 2016 data.

 


Showing 1 reaction

Please check your e-mail for a link to activate your account.
  • I’m not sure I understand where the $1.4B loss to GDP is coming from. The steel makers are among the most productive workers in the USA, with output per worker on the order of $400-500K per worker per year. Just looking at the jobs list, there should be a multiple billion dollar increase in output (assuming steel/al workers put out $400K and conservatively that all other workers are putting out $200K on average, then that’s a $3.6B increase. Is it that exports go down?

    Also, it appears you guys are neglecting the terms-of-trade gain. If the steel tariff is 25% and prices go up by only 6.29%, that entails that foreign suppliers will have to lower their prices by like 15%. In other words, about 70% of the tariff tax incidence will fall on foreign producers. Thus if tax revenue is $5.97B, then the terms-of-trade gain should be about $4.18B; this should vastly outweigh any deadweight losses, that would be on the order of 2% or 3%. Thus, even accepting your GDP loss of $1.4B at face value, the terms of trade gain less deadweight losses is going to be on the order of $4.1B, entailing a net welfare gain of 4.1 – 1.4 = $2.7B