Get Ready for the Fallout From Trump's Tariffs

Get Ready for the Fallout From Trump's Tariffs

President Trump believes that trade wars are easy to win. Americans are about to discover that that’s not the case.

The problem with trade wars is the part where the other side fires back. Countries are already preparing their responses to Trump’s trade actions, which will hurt American businesses and consumers.

In response to Trump’s recently announced 25 percent tariff on steel and 10 percent tariff on aluminum, the European Union prepared a 10-page list of potential targets for retaliation. The list includes $3.5 billion worth of products ranging from rice to makeup. Products that require steel and aluminum as inputs, such as motorcycles, could also be hit by the retaliatory tariffs.

Exporting motorcycle businesses would therefore get hit with a double whammy. First, they would be forced to pay higher prices for the steel and aluminum they need to make their products. Second, they would be subjected to tariffs when they attempt to export these products to the EU. Further tariffs could come into play down the line if the World Trade Organization judges that U.S. tariffs are illegal or if they are not withdrawn within three years.

China is also reacting to the proposed steel and aluminum tariffs as well as the administration’s announcement of $60 billion in other tariffs aimed at combatting alleged intellectual property theft. In response, China is threatening tariffs on food products such as nuts and wine and reportedly planning to go after more important trade products, such as soybeans and cotton. This list could also include automobiles, which would present another blow to an American industry already set to be hurt by steel and aluminum tariffs.

Yet even without such retaliation, Trump’s tariffs would harm American workers. Trade is mutually beneficial, since both buyers and customers need to believe that an exchange benefits them in order to motivate them to perform it. Open trade enables these mutually beneficial exchanges.

The cost of restricting trade is very real to the Americans who stand to lose their jobs and the businesses who would face higher costs because of tariffs. A study by the Trade Partnership found that 470,000 Americans would lose their jobs if Trump’s tariffs come into effect, without even taking into account the effects of retaliatory actions by other countries. The lessons of recent history provide evidence in support of this estimate. When President Bush imposed tariffs on steel in 2002, steel prices rose by as much as 50 percent and 200,000 Americans lost their jobs within a year.

The justification offered for the administration’s tariffs is that they would create jobs in the steel industry. But the Trade Partnership study found that 18 jobs would be lost for every steel job created. Moreover, the steel industry is hardly the picture of an industry in need of assistance — the market capitalization of the five largest steel companies has more than doubled over the past five years. Unfortunately, it appears the president has not consulted anyone outside of the steel and aluminum industries in deciding to impose these tariffs. For instance, his roundtable discussion on these measures included 15 representatives of the steel and aluminum sectors, but not one from the many industries that rely on steel and aluminum to make their final products. Certainly the millions of Americans who will soon be paying more for common products were not invited to give their thoughts.

Trade wars rarely involve just one side levying tariffs, as Americans are about to find out. The targets of Trump’s tariffs are already readying their response. Americans should prepare their pocketbooks for the impact.

Andrew Wilford is a Young Voices Advocate residing in the D.C. metro area. He writes primarily on tax and trade policy, as well as crony capitalism. Follow him on Twitter @PolicyWilford.

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