Post Scriptum on Steel Tariffs
By Pierre Lemieux
A Wall Street Journal story of today (“Foreign Steel Keeps Flowing Into U.S. Despite Tariffs,” December 5, 2018) expresses surprise at the most standard results of elementary trade theory: a tariff raises all prices equally, those of domestic producers as much as those of foreign ones; domestic quantity supplied increases; and imports decrease. The Journal writes:
Instead of isolating imported steel as the most expensive in the market, domestic steel producers have raised their prices … Domestic steel producers have raised their prices … The tariffs have made steel more expensive in the U.S. than almost anywhere in the world. The benchmark price for hot-rolled coiled sheet steel is up 22% in the past year at $760 a ton, 70% higher than the price of sheet steel in some other countries. … Between April and September steel production averaged nearly 8 million tons a month, the most since 2014, the steel institute said.
The title of the article, of course, is misleading. Except if the tariff is “prohibitive,” imports will continue to come in, but in smaller quantity, as indeed seems to be the case:
Imports are down 13% in the year through October from a year earlier.
The reader who has read my discussion of steel in a post of last week will not be surprised.
Also not surprisingly, as economic theory again forecasts, short-term profits of domestic producers (Nucor Corp., U.S. Steel, and others), who benefit from a rent, have increased—or have replaced losses. Indeed, this is precisely why domestic producers wanted the tariff in the first place.
And note how, given continuing advances in technology and productivity, increased production hasn’t translated into equivalent employment gains:
Just over half of the 18,400 jobs shed during the last steel market slump have returned.
Although the article sometimes appears confused, reading it is, for the wheat and for the chaff, a good exercise in applied economics.