Tariffs might help U.S. steel companies, but a crackdown on imports by President Donald Trump could hurt U.S. automakers and other industries – and raise prices for buyers of their goods.
The Trump administration is considering tariffs on steel imports in an effort to squeeze China and other countries that Trump says are destroying the U.S. steel industry. No action has been taken, but auto industry analysts and trade experts say the threats already have created uncertainty in the market.
Even though U.S. automakers build vehicles primarily from U.S.-sourced steel, economists say a protective tax on imported steel would give makers of domestic steel the incentive to raise their prices – just because they could. That would be a boon for the domestic steel industry, but it would make U.S.-made cars more expensive and push consumers to buy cheaper cars from foreign companies unaffected by the tariff, economists say.
“Prices will go up and people will buy less,” said Alan Deardorff, professor of public policy and economics at the University of Michigan. “It’s ironic that in discouraging imports of steel, he may encourage the imports of cars.”
The latest discussions over trade – and steel in particular – arose after transcripts of a Wednesday media session held by Trump on Air Force One were published. In a question-and-answer session, the president described the influx of cheap foreign steel as “a big problem.”
“They’re dumping steel and destroying our steel industry; they’ve been doing it for decades, and I’m stopping it,” Trump told reporters. “It’ll stop...
“There are two ways – quotas and tariffs. Maybe I’ll do both.”
Robert E. Scott, a senior economist and director of trade and manufacturing policy research for the Economic Policy Institute, in a blog post Tuesday underscored the dilemma in economic sanctions.
One segment of the economy – manufacturers that use cheaper foreign steel – could be hamstrung with rising materials costs, he said.
At the same time, tariffs and quotas would save jobs in the U.S. steel and aluminum industries from near-term threats and help domestic producers recover from unfair trade.
“In the best of cases,” Scott said, “tariffs can be used to encourage other importers to develop common policy to address overcapacity and overproduction by China and other major exporters.”
While it is unclear what steps might be most effective, there is mounting pressure for Trump to act.
“Chinese steel overproduction is one of the most significant contributors to American manufacturing job loss,” U.S. Rep. Debbie Dingell of Michigan said in an emailed response to questions. “We need stronger trade enforcement to protect against countries who cheat. President Trump should follow through on his promise to hold foreign governments accountable for illegal trade practices that continue to put American workers at a disadvantage.”
In June, Trump asked the U.S. Department of Commerce to conduct what’s known as a Section 232 investigation into steel and aluminum imports to determine whether they are hurting U.S. national security. If the government finds a threat there, the rarely used investigation would allow the administration to levy “protective” tariffs against a country or group of countries. Experts expect Trump to argue that the military needs domestic steel for military operations, and that the “dumping” of foreign steel is harming U.S. steel mills.
However, the voices urging Trump to exercise caution are growing louder. Perhaps most prominent is a bipartisan group of 15 former White House economic officials who drafted a letter to the president this week. They specifically took issue with the idea of tariffs imposed on supposed national security threats.
“The diplomatic costs might be worth it if the tariffs generated economic benefits. But they would not,” the panel wrote. “Additional steel tariffs would actually damage the U.S. economy. Tariffs would actually raise costs for manufacturers, reduce employment in manufacturing and increase prices for consumers.”
Compounding the problem, they wrote, is the fact that other countries where U.S. automakers do business could also be hurt by tariffs. Among the 110 countries the U.S. imports steel from are allies such as Canada and Mexico.
“Additional tariffs would likely do harm to our relations with these friendly nations,” the group wrote.
Ford Motor Co. said it buys 95 percent of steel and 98 percent of aluminum used in its American-built vehicles from U.S. manufacturers. The company deferred further comment to the American Automotive Policy Council, a trade group representing Ford, Fiat Chrysler Automobiles and General Motors Co.
In May, that group submitted two documents to the U.S. government commenting on the Section 232 investigation.
U.S. automakers buy 15 percent of all the steel consumed in the U.S., a vast majority of which is domestically sourced, according to one document.
“(If) the president were to increase tariffs on foreign steel or impose other import restrictions, the auto industry and the U.S. workers that the industry employs would be adversely affected, and (this) unintended negative impact would exceed the benefit provided to the steel industry from this executive action,” read the document. “Inevitably, the imposition of across the board higher tariffs or other restrictions on imports of steel into the United States would only widen the existing price gap by increasing the price of U.S. steel and thus the cost of U.S.-built vehicles.
“This would lead to lower sales of domestically built cars and trucks in the highly competitive U.S. auto market, a decrease in U.S. auto exports, and a loss of the jobs that those economic activities support.”
Representatives from the Fiat Chrysler and GM declined to comment directly on the potential tariffs.
Representatives from the United Auto Workers union and the Alliance of Automobile Manufacturers – a trade group that represents a dozen carmakers that operate in the U.S., including the Detroit Three – said they could not comment on the president’s trade dealings with China, because the Trump administration has not given a clear outline of its plans.
However, in a June 12 letter to U.S. Trade Representative Robert Lighthizer that addressed renegotiation of the North American Free Trade Agreement, auto alliance President and CEO Mitch Bainwol wrote: “Today’s highly complex automobile is a product comprised of thousands of parts sourced from a global network of thousands of suppliers. ... Disrupting this integrated supply chain would increase prices, lower sales, threaten exports and endanger American workers’ jobs.”
Trump could target China through a number of different trade avenues, but even with a possible steel tariff looming, uncertainty likely has put the plateauing U.S. auto industry in a holding pattern, believe Deardorff and Kristin Dziczek, director of the industry, labor and economics group at the Center for Automotive Research.
“The auto industry hates risk,” said Dziczek. “They hate uncertainty. Uncertainty creates risk in the industry, and risk costs money.”
If the tariff is levied on all steel imports, U.S. steel companies would raise prices as well. Many of the vehicles produced in the U.S. are made with U.S. steel. So, auto companies and suppliers would absorb those cost increases for a short time, but eventually the cost of a vehicle made with U.S. steel would increase.
Though plenty of foreign automakers build cars in the U.S., models made outside the country would dodge the steel tariff, keeping prices low on vehicles imported here. That makes U.S. auto companies less competitive, says Deardorff, and would potentially lead to job losses despite short-term gains in the steel industry.
In the meantime, Trump is creating more uncertainty than anything, according to Dziczek and Deardorff.
“Uncertainty is almost like a tax,” said Deardorff. “It discourages any kind of activity.”