Steel Tariffs Talk Ignores Effects on Manufacturing Jobs

(Bloomberg View) -- Steel tariffs work! That is, when President George W. Bush levied tariffs of 8 percent to 30 percent on steel imports in March 2002, it did seem to have a detectable positive impact on steel industry employment.

For about a year after the tariff was imposed, steel industry employment stopped falling. Yay! Then the decline resumed amid a brewing global trade battle. Bush lifted the tariffs in December 2003. A few months after that, steel industry employment stopped falling again. So ... maybe tariffs don't work so well. And in any case, the number of jobs involved -- a few thousand amid total nonfarm payroll employment of about 130 million -- was quite small.

President Donald Trump is of course now talking about imposing import tariffs of 25 percent on steel and 10 percent on aluminum. This would be done in the name of national security, in part because the rules make it pretty easy to impose tariffs in the name of national security and in part because there are some possibly legit national security concerns about the decline of U.S. aluminum manufacturing capacity.

Trump's own arguments for trade barriers seem to be mostly about jobs and economic growth,  though, which is why looking at the employment implications in the case of steel and aluminum is relevant. Employment in both industries has fallen a lot since the early 1990s:

The available Bureau of Labor Statistics series on these industries only go back to 1990, but American Iron and Steel Institute data indicates that steel industry employment suffered its sharpest fall in the early 1980s, going from 453,000 in 1979 to 236,000 in 1984. The all-time peak was 650,000, in 1953. (The Iron and Steel Institute tallies appear to include the industry sector "steel products from purchased steel" -- 57,300 employees in December -- which I didn't include in the above charts because purchasers of steel wouldn't necessarily be helped by tariffs.) These declines aren't just the result of competition from imports: Global steel industry employment fell an estimated 50 percent from 1972 to 2014 as steelmaking became more efficient and automated.

There are other jobs dependent on steel and aluminum manufacturing. Mining of bauxite, the rock that aluminum is made of, isn't really done much in the U.S. anymore, but there are just under 5,000 iron miners in the U.S. (80 percent of them in Minnesota), plus a few thousand miners of the metallurgical coal used in steel production. Manufacturing and mining jobs also tend to have large multiplier effects, creating lots of other jobs in their wake.

To keep it simple, though, let's just compare total U.S. employment in primary metals manufacturing with the numbers for some major manufacturing industries that consume metals.

So -- as has been widely noted since the tariff talk heated up on Thursday -- there are many, many more U.S. manufacturing workers who would be adversely affected by tariffs that raise prices on steel and aluminum than workers who would benefit from them. Also, employment in the metal-using industries, apart from aerospace, has held up much better over the past few decades than employment in primary metals manufacturing. Cheap metal imports have surely saved jobs in the U.S. as well as destroyed them. And we haven't even gotten to the impact on consumers.

None of this should necessarily end the discussion on whether there should be steel and aluminum tariffs. As Commerce Secretary Wilbur Ross pointed out with the help of a can of Campbell's Chicken Noodle Soup on CNBC this morning, metal accounts for just a small share of the price of soup, cars and other metal-containing products. Also, there are legitimate questions about whether the U.S. government should be doing more to encourage manufacturing, as well as protect some high-potential industries from product-dumping by China in particular. The current tendency of the news media and many in politics to greet every proposed trade restriction as The End of Capitalism as We Know It seems a bit rich.

Still, I have my doubts that Ross -- who bought the assets of several bankrupt U.S. steel producers in 2002 and sold them to Mittal Steel (now ArcelorMittal) in 2005 -- is the best person to judge fairly whether the benefits to steel producers from the proposed tariffs really outweigh the costs to other manufacturers and consumers. And the president's penchant for expending his diminishing political capital on behalf of smallish, declining industries with gloried pasts (coal mining is the other obvious example) doesn't seem very well thought out. It's most likely just poorly informed nostalgia masquerading as economic policy.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

1. His tweet this morning appeared to be based on a complete (and common) misunderstanding of how trade affects gross domestic product. My Bloomberg View colleague Noah Smith explained a while back why it's a misunderstanding, and explained it again today, so I'm not going to get into that here.

To contact the author of this story: Justin Fox at justinfox@bloomberg.net.

To contact the editor responsible for this story: Brooke Sample at bsample1@bloomberg.net.

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

©2018 Bloomberg L.P.