BOHANON & CUROTT: No, trade wars are not easy to win, Mr. President

March 9, 2018

Economic Analysis by Cecil Bohanon & Nick CurottPresident Trump sent markets tumbling with the announcement of his plan to impose a 25 percent tariff on imported steel. When critics pointed out the tariff will likely spark an international trade war, Trump responded that “trade wars are good, and easy to win.” Apparently, Trump thinks he is declaring war on foreigners. But in reality, he is declaring war on Americans.

The first casualty of the steel tariff will be American families. The price of everything made from steel will rise. And the standard of living of Americans will fall. This is basic economics. Yet the Trump administration brazenly denies consumers will be harmed.

Consider the argument of Trump’s secretary of commerce, Wilbur Ross, who made headlines with his defense of the tariff on CNN. Lifting a can of Cambpell’s soup, Ross declared “in a can of Campbell’s soup, there are about 2.6 pennies’ worth of steel, so if that goes up by 25 percent, that’s about six-tenths of 1 cent on the price of Campell’s soup. … Who in the world is going to be too bothered?”

We hate to point out the obvious, but American consumers buy a lot of cans—130 billion a year, to be exact. So if the tariff increases the price of each can by 0.65 cent, Americans will be bothered to the tune of $845 million. Now let’s compare this cost to the benefits. There are 83,890 steel jobs nationally as of 2016. Let’s optimistically estimate that the steel tariff will increase steel-industry employment 10 percent, or by 8,389 jobs. Dividing the $845 million cost by 8,389 jobs, it costs the consumers of cans $100,727 to create a steel job that generates an average income of $52,640. And cans are just one of thousands of products made of steel.

The second casualty of the tariff will be American businesses. Every business that uses steel to produce products will see its costs increase and its profits decline. After the last major steel tariff in 2002, many steel-using businesses laid off workers. Some went out of business entirely. As a result, it’s estimated that 200,000 American workers lost their jobs—6,043 of whom were Hoosiers.

Trade wars are not easy to win, because nobody wins in a trade war. Each round of tariffs hurts the country imposing them and the countries they are imposed on, to the mutually assured destruction of every economy.•


Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.


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