Trump Repeats His Steel Tariff Mistake

National Review Online

Tuesday, February 11, 2025

 

Edmund Burke said, “Example is the school of mankind, and they will learn at no other.” Be that as it may for mankind, it doesn’t seem to apply to Donald Trump and steel tariffs.

 

It’s probably best to understand steel tariffs as something Trump believes in for their own sake. He imposed them during his first term, so it’s not a mystery what they do. They raise prices for American steel buyers and raise profits for American steel makers.

 

The U.S. International Trade Commission studied Trump’s first-term steel and aluminum tariffs and found that they raised U.S. production of those metals by $2.25 billion. They raised the price of imported steel and allowed domestic steel makers to charge higher prices in the absence of competition. That reduced U.S. production in industries that consume steel by $3.48 billion.

 

This result is perfectly consistent with economic theory. The tariffs took money from a variety of industries and gave it to the steel companies, while lighting some money on fire along the way. Dispersed costs, concentrated benefits, and deadweight loss combined to make the country as a whole a little worse off.

 

The president’s insistence on wanting a manufacturing renewal should mean he wouldn’t want to raise the price of steel, a manufacturing input. But he simply thinks steel tariffs are the right thing to do. It’s a reflex.

 

Trump’s first-term trade representative, Robert Lighthizer, had made a fortune lobbying for steel companies between his stints in government. His trade representative this time around, Jamieson Greer, is a Lighthizer protégé and worked for the same law firm that lobbied for steel companies. While it’s instinct for Trump, it’s classic revolving-door politics for his staff.

 

Tariffs rebound in unexpected ways, and steel is no exception. Last time around, U.S. distillers paid the price in addition to steel buyers. European countries retaliated against the steel tariffs by targeting U.S. whiskey, and sales have still not recovered.

 

No, there’s not a national security justification for steel tariffs. The military uses between 1 and 3 percent of U.S. domestic steel production, so tariffs on steel from every country to protect all of it don’t make sense for defense purposes. Most imported steel is from allied countries, with Canada the top source. Chinese imports are negligible.

 

The last time the military urgently needed steel, it relied on allies rather than domestic industry. William Greenwalt, former deputy undersecretary of defense for industrial policy — not a position held by free-market ideologues — has told the story of the MRAP program, where the military needed specialty steel to produce vehicles resistant to IEDs in the Middle East.

 

“One would have thought that an industry so heavily invested in its relations with the US government and reliant on protectionist measures for decades would have jumped at the opportunity to show its patriotism and protect American servicemembers from being blown up by roadside bombs,” he wrote for Breaking Defense in March 2024.

 

Instead, Greenwalt found the industry uncooperative and procured most of the necessary steel from producers in Sweden, Germany, Israel, and Australia. “When DoD urgently needed more steel, the US industry basically told Uncle Sam to pound sand,” Greenwalt wrote. “Our allies then bent over backwards to help us, when our own industry would not.”

 

It’s not just the military. U.S. companies begged the government for exemptions to the steel tariffs last time around because they simply could not get the steel they needed from U.S. producers.

 

For example, food-equipment manufacturers need special food-safe steel for their products. They tried to buy it from U.S. steelmakers and either could not obtain it or could obtain it only at high prices or on a delayed schedule. “The fact that they have been late on EVERYTHING just makes this whole scenario worse,” a steel service center trying to purchase for a food-equipment manufacturer said.

 

When the food-equipment manufacturers complained to the government about it, steelmakers countered that they did have the capacity to deliver the steel that they weren’t delivering, so the government should not grant the exemption request. There were tens of thousands of similar exemption requests from countless industries, illustrating that American businesses pay the price for these tariffs, not foreigners.

 

One of the advantages of getting a second term in the Oval Office should be learning from mistakes in the first term. On steel tariffs, Trump refuses to do so.