Tariff tiff: Economists say Trump plan bad for U.S., Kentucky, Louisville

President Donald Trump’s planned tariffs on imported steel and aluminum will harm the U.S. economy — even without retaliation from China and the EU — and do little, if anything, to help U.S. steelworkers, four economists told Insider.

Trump told representatives from the steel and aluminum industries last week that he planned to impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum

Donald Trump

“So, steel and aluminum will see a lot of good things happen,” Trump said. “We’re going to have new jobs popping up. We’re going to have much more vibrant companies.”

While the steel and aluminum industries are applauding the proposal, economists and representatives from other industries said they worried that higher steel costs would increase prices for products ranging from bridges and cars to washing machines and beer cans.

Lower demand for those products, they said, could lead to job losses in those sectors and more than offset any gains for the steel industry — and even those aren’t a sure thing.

Trump in his comments to steel and aluminum industry representatives bemoaned the closing of steel plants and said that those industries had not been treated fairly by other countries, which are subsidizing their industries and manipulating their currencies to give their domestic industries an unfair competitive advantage of their U.S. competitors.

“What they do is they dump massive amounts of product on our country, and it just kills — it destroys our companies and our jobs,” he said.

“So, we’re bringing it back, and we’re going to bring it back relatively rapidly, and we’re going to be instituting tariffs,” he said.

“You’re all — pretty much all of you will immediately be expanding if we give you that level playing field, if we give you that help,” Trump told the industry representatives. “And you’re going to hire more workers, and your workers are going to be very happy.”

Steel companies, indeed are happy, as are their investors: AK Steel said it supported the tariff plan, and Thomas Gibson, president and CEO of the American Iron and Steel Institute said he was pleased with the president’s proposal. Shares of AK Steel jumped 9.5 percent on the day of Trump’s comments. But markets as a whole fell that day, with steel-heavy industries suffering declines: Heavy equipment maker Caterpillar, for example, was down 2.8 percent. Crane maker Manitowoc fell nearly 6 percent.


Morton Marcus

“The problem is that any tariff is clearly a tax on the consumer,” said Morton Marcus, an economist, columnist and former director of Indiana University’s Indiana Business Research Center.

A tariff on imported steel and aluminum will make those materials more expensive, he said, which means companies that use them — construction, automotive, soft drinks — will incur higher production costs that they will pass on to the consumer.

Stephan Gohmann, director of the John H. Schnatter Center for Free Enterprise at the University of Louisville, said tariffs generally do not promote job creation.

The tariffs may have a visible effect on jobs in steel and aluminum plants, Gohmann said, but they also will have less visible effects on all industries that use steel, because as their costs and prices rise, their demand will decline — and so will their number of jobs.

Stephan Gohmann

That includes some of Louisville’s biggest employers: UPS will have to pay more for its delivery trucks and cargo planes. Ford Motor Co. will have to pay more for the aluminum and steel it puts in its Escape SUV and F-150 pickup. GE Appliances will have to pay more for the alloy and metal it puts in its washing machines.

Nearly 50,000 jobs in Kentucky are in steel-intensive industries.

Consumers may not readily notice that they have to pay an extra $100 on a washing machine, Gohmann said, but that’s $100 the consumer won’t be able to spend elsewhere, which will hurt restaurants, retailers and distillers. Lower revenue for those businesses will mean slower growth, stagnation or job reductions.

Marcus said taxpayers might see higher taxes because their governments had to pay more to build bridges, which would require materials including rebar. And higher prices in products that use steel will reduce consumers’ disposable income.

Even small price increases add up. A penny increase on a beer can doesn’t sound like much, but U.S. consumers buy billions of cans per year. The Beer Institute said that the aluminum tariff would amount to a tax on the industry of nearly $350 million.

“You may not buy as many Doritos,” Marcus said.

Or, he said, consumers may buy less expensive models of big-ticket items: They may buy the $28,000 Ford F-150 XL instead of the $33,000 F-150 XLT.

Frank Raymond

Frank Raymond, economics professor and associate dean of Bellarmine University’s Rubel School of Business, said tariffs generally did not achieve their goal — to save jobs — even in the industries they were targeting.

Tariffs on foreign steel are intended to make American steel less expensive by comparison, but if a tariff increases the price of foreign steel, American steel producers likely will raise their prices to match those of their foreign competitors.

“The reason is: They can,” Raymond said.

The steel and aluminum industries are beholden to their shareholders — not their employees, he said.

Those dynamics mean that a tariff would push steel prices higher across the board, with no discernible benefits for U.S. steelworkers, Raymond said.

Marcus agreed, saying that U.S. producers also may be able to handle higher demand for their products with their current workforce, as the industry may have some excess capacity.


Jose Fernandez

Jose Fernandez, associate professor of economics at UofL, said that beyond higher prices for all kinds of consumer goods, Kentuckians were are likely to see a negative impact from retaliatory tariffs.

The European Union, for example, is threatening to respond to Trump’s plan with import tariffs on bluejeans, Harley Davidson and bourbon, according to Reuters.

That’s bad news for distillers such as Louisville-based Brown-Forman, which could see demand for Woodford Reserve and other products decline as prices of U.S. products increase relative to those from competitors based outside of the U.S.

Brown-Forman generates about a quarter of its revenue in Europe.

“The tariffs will be bad for the Kentucky economy,” Fernandez said.

Pro-business groups including the Kentucky Chamber of Commerce are worried.

Ashli Watts

“We haven’t fully vetted the latest proposal with our members but naturally we are concerned about the possibility of asymmetrical retaliation by foreign countries against other Kentucky-based industries,” said Ashli Watts, the chamber’s vice president of public affairs.

“Kentucky is a net winner by selling our manufactured goods and agricultural products to other countries. Many Kentuckians depend on selling our products around the world for their jobs.”

Trump also is facing some opposition from within his party: U.S. Sen. Rand Paul, R-Ky., told Fox News that he opposes the tariffs because they’re “simply a tax on the consumer.”

House Speaker Paul Ryan, R-Wis., said Monday that he is “extremely worried about the consequences of a trade war.”

Raymond said that he understands the president’s frustration at steelworkers losing their jobs, but tariffs are unlikely to solve the problem.

“When you impose tariffs, it shrinks the pie for everybody,” he said.