Describe the effects on U.S. producers of steel, U.S. and consumers of steel, and the U.S. economy overall, after the United States imposed tariffs on steel imports in 2018. For the overall effect on the United States as a result of the steel tariffs, explain why it matters that the United States is a large importer of steel.

What will be an ideal response?


POTENTIAL RESPONSE: Tariffs imposed on U.S. imports of steel in March 2018 benefit domestic steel producers because they gain as the price of steel rises and domestic production increases. U.S. steel workers also benefit as employment in the industry increases. The U.S. consumers of steel are harmed, since they must now pay a higher price and buy less. In the case of steel, consumers are other U.S. firms who use the metal in their own production of goods. Because steel now costs more, the profitability of these firms decreases. With the rising costs of production associated with the increase in steel prices, firms reduce production and hire fewer workers. Steel producers employ relatively fewer workers, but, because steel is widely used in the production of many other products, the net effect on U.S. national employment is probably negative. 

For a small importing country, this would be the end of the story, as a small country cannot influence international markets. Overall, a small country loses by imposing a tariff. In this example, the losses to domestic consumers of steel are larger than the sum of the gains to domestic steel producers and the tariff revenue collected by the government. But, because the United States is a large country that can impact international markets, it might be able to gain from the tariff by leveraging its importance in the world economy to obtain better prices for steel from foreign exporting firms. More than likely, however, foreign exporting countries will retaliate, with tariffs on U.S. imports. In this case most, if not all countries, involved are likely to be losers. They all forego the general gains associated with free trade.

Economics

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