Turning aluminum tariffs into gold?
And if it was true ? What if U.S. aluminum tariffs filled Washington’s coffers, created U.S. jobs and do not harm downstream industries or consumers? A win-win, right? This is the claim made in a new study by the Economic Policy Institute, aptly titled “Aluminum Producing and Consuming Industries Thrived Under US Section 232 Import Measures.” If that was true, it would be a game changer, right?
But it’s do not true.
Let’s start from the beginning. The study examines President Trump’s Section 232 tariffs on aluminum. He argues that these 10% import duties “have had no negative effect on downstream industries or consumers”. It gets better. The study insists that production capacity, investment in facilities and jobs have all increased as a result of tariffs. In other words, all the benefits, no cost.
But it’s do not true.
The most glaring problem with the study is that it does not actually have a measure of prejudice to end users or downstream consumers. It examines whether producers of beer cans, for example, paid higher prices for aluminum because of the tariff, and passed them on to the consumer. The report says no and no. But to see why that doesn’t make a lot of sense, let’s take an example.
One of the US companies that was hit with a 25% tariff when the European Union (EU) hit back at Trump’s tariffs was Harley-Davidson. The added rate $ 2,200 per bicycle sold in the EU. But Harley-Davidson Ate the tariff, that is to say, it incurred the cost without passing it on to the buyers. It would be ridiculous to claim that the tariff didn’t hurt Harley-Davidson, but that’s exactly what the study would have you believe, because it only looks at pricing.
Why would Harley-Davidson eat these fares? Competition, on the one hand. Or stocks available in the EU that could more easily be ‘marked to market’. The study does not model any of this. Instead, it uses a simplistic tool that assigns all the actions to change over time, using a control variable. To understand this, a study like this needs to look at the relative tariff exposure of downstream industries and the employment growth across them, in order to capture the cross-sectional variation in tariff effects, not just time.
In truth, the study does not believe its own conclusions. If so, the conclusion would not simply encourage the Biden-Harris administration to “continue” the tariffs. He would rather advocate breeding these rates. Think about it: if tariffs equal more government revenue, more production and investment, more jobs, and do no harm, then the United States needs more of these tariffs, right? It is the alchemy of tariffs: win-win.
Done well, such a study would also calculate the cost per job saved (if any) in the industry affected by tariffs. There is nothing new to show that a tariff can result in a short-term increase in employment, but usually at a cost that far exceeds what those jobs pay. The study says nothing about the cost per job saved. Again, all the benefits, at no cost.
Incredibly, the study argues that foreign retaliation is also not costly. He takes a very superficial look at American spirits. Have the EU’s retaliatory 25% tariffs on bourbon, rye and US whiskey hurt exports? The study says no. What is the proof? The study quotes the United States Distilled Spirits Council on the growing popularity of American spirits and indicates that global trends, not EU tariffs, are to blame for all the misfortunes. But the Council could not disagree more: it find that US spirits exports “plunged 37%” to the EU and 53% to the UK. What does “no harm” look like?
One last point. Suppose for the moment that the tariff alchemy is real. Why use section 232? The study exploits the protectionist favorite fiction that foreign firms are all subsidized, allowing them to sell below cost and purge American firms on their own. If so, why not use an anti-dumping or countervailing duty, or a safeguard? Why section 232?
I will tell you why. This is because section 232 is the new holy grail of protectionists. A tariff under the banner of national security is much more versatile. It is not limited by the legal requirements of anti-dumping or countervailing duties, or by a safeguard. And once the genie is out of the bottle and other countries use their own national security tariffs, protectionists can demand even more US retaliation.
But it’s do not true.
In fact, American companies need imported aluminum to stay in business. Harbor Aluminum has found that only one in five tonnes of primary aluminum consumed in the United States is produced in the United States. In fact, a 40-year-old foundry, built in 1980, is the most recent American foundry in operation today. The United States cannot meet domestic demand without imported aluminum, a finding that should add to the Biden administration’s arguments to end Trump’s costly aluminum tariffs.
Marc L. Busch is Karl F. Landegger Professor of International Trade Diplomacy at the Walsh School of Foreign Service at Georgetown University, Non-Resident Principal Researcher at the Atlantic Council, and host of the podcast. TradeCrafts