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In March 2018, President Donald Trump invoked Section 232 of the
Trade Expansion Act of 1962 to impose 25% tariffs on steel and 10%
tariffs on aluminum imports from almost every country in the world
(Argentina, Brazil, and South Korea voluntarily accepted quotas
rather than tariffs). In April 2018, the Trump administration
announced additional tariffs on various imported goods from China
under Section 301 of the Trade Act of 1974.
The first set of tariffs, known as "steel protectionism", hit
approximately USD35 billion in imports of iron, steel, and other
raw metals. The second set covers an even larger volume of imported
goods from China—primarily computers, electronics, electrical
equipment, and machinery— bringing the combined total of newly
tariffed imports to roughly USD265 billion.
We investigated the impact of these tariffs on the US
macroeconomy and its important sectors—recognizing both direct
and spillover effects to the global economy. For industry detail,
we quantified how increases in the prices of key raw materials and
intermediate inputs will affect purchases of construction equipment
and construction activity. In addition, we analyzed the effects of
potential retaliatory tariffs on US farm exports and agricultural
equipment purchasing.
Impact to the macroeconomy
While the tariffs will improve the US trade balance, they will
constrain total real domestic spending and the corresponding
production in many industries. The negative impacts are largely
from higher prices, which will be felt by both producers and
consumers
The average loss in GDP is USD29 billion per year for 10 years,
with consumers reducing their real spending by more than USD23
billion per year.
Job losses in the US that can be attributed to the full effects
of the tariffs will average 26,000 per year over the next 10
years.
Impact to industry
Both steel protectionism and the additional tariffs on China
will raise costs in many downstream industries, significantly
reducing production in the machinery and equipment, computer and
electronics, and electrical equipment sectors.
Sales of construction equipment will be directly hurt, lowering
the industry's domestic output by an average of almost USD500
million per year over the next 10 years. The tariffs will inflate
the production cost of construction equipment, primarily through
the transmission of steel price increases, thereby raising prices
for purchasers and lowering demand. As the higher-cost steel feeds
through the supply chain, it will increase construction costs and
dampen construction activity.
The 10% tariff on imports of aluminum ingot and related mill
products, castings, and forgings will permanently raise the prices
of primary and intermediary aluminum products. Only primary
aluminum producers will benefit.
The indirect damage on global demand will hurt US companies
that rely on a growing export market. In addition, retaliatory
tariffs are depressing US crop prices, especially soybeans, which
constrains farm income and agricultural equipment purchasing.
The newly enacted tariffs are unmistakably impairing the US
economy through direct, indirect, and induced effects. Many
important domestics industries will need to adjust considerably to
these tariffs and the corresponding effects on global trade.
Our findings were calculated utilizing our Global Link Macro-Industry
Model in conjunction with IHS Markit industry experts.
This post was authored by Michael Boldin, a consultant at IHS
Markit
