Experts Can’t Agree on Impact of Trump’s Steel, Aluminum Tariffs

Headline after headline earlier this month touted the findings of a study by an analytics firm forecasting gloom and doom from imposition of the steel and aluminum tariffs announced by President Donald Trump.

Business Insider, Fortune, the New York Daily News, Axios, ABC News and many other media outlets reported the study from The Trade Partnership projecting that the tariffs would destroy five American jobs for every one it created — a net loss of 146,000 positions.

The Left-leaning Economic Policy Institute (EPI) last week fired back that the true loss would be about 97 percent less, only 5,000 jobs. The union-backed policy organization argued that The Trade Partnership reached “hyperbolic” conclusions by using a nonstandard model that vastly overstates the impact of tariffs.

The side of the debate that ultimately can claim vindication will determine whether the economic downside of Trump’s tariffs proves to be the mere nuisance as the country combats a trade imbalance with China, claimed by the president’s backers, or something that imposes the more serious drag on the overall economy, as his critics assert.

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“The question is how the economy is going to respond to higher prices for steel and aluminum,” said Robert Scott, who wrote the EPI study. “They’ve made the most extreme assumptions possible.”

Scott, EPI’s director of trade and manufacturing policy research, told LifeZette that The Trade Partnership study abandons the traditional assumption of full employment generally used in trade research. That has the effect of exaggerating the jobs losses triggered by higher prices for steel and aluminum that tariffs cause.

That’s because workers have an easier time moving to jobs in other industries during tight labor markets.

But assuming the economy is not at full employment is hard to justify when the unemployment rate is a near historical low of 4.1 percent and the country added more than 300,000 last month, Scott said.

Scott found net job losses of only 5,000 when he applied a full-employment model to The Trade Partnership study.

Laura Baughman, president of The Trade Partnership and co-author of the company’s study, told LifeZette that she has not reviewed the EPI report. But she added even that group concurs with the general conclusion of job loss.

“I would note that they agree with us,” she said. “We can quibble over the numbers, but it sounds like the same conclusion.”

“At the end of the day, it’s a question of whether we want China with an illegal mercantilist policy take over world manufacturing as they have been doing … We’re just giving away our best industries,”

In an updated study factoring retaliatory measures by the European Union, The Trade Partnership projected that the harm from the tariffs could grow to a net job loss for the U.S. economy of nearly 470,000 — 26,346 new jobs in steel and non-ferrous metals offset by 495,136 losses elsewhere.

The biggest losers under that scenario would be trade and distribution services (down 132,108 jobs), construction (down 66,022 jobs), business and professional services (down 43,082 jobs), personal and recreations services (down 34,890 jobs),financial services (down 13,082 jobs), communications (down 9,856 jobs) and electronics equipment manufacturing (down 9,165 jobs).

Since then, however, the Trump administration announced that Australia, Argentina, Brazil, South Korea, and the European Union would be exempt, along with Canada and Mexico.

A separate study by the conservative-leaning American Action Forum estimated that the exemptions would save Americans consumers $5.8 billion a year. But the organization found that the continued presence of tariffs and uncertainty surrounding trade would weigh on the U.S. economy.

But Scott said it is important to keep the focus on the main rationale for the tariffs — the threat posed by unfair trade practices by China in an attempt to dominate key industries. A review undertaken by the Commerce Department concluded that the threat to America’s domestic steel and aluminum industries jeopardized national security.

Scott said manufacturing jobs also tend to pay better, have a greater spinoff impact and pay more valuable dividends in research and development.

“At the end of the day, it’s a question of whether we want China with an illegal mercantilist policy take over world manufacturing as they have been doing … We’re just giving away our best industries,” he said.

That’s not to say Scott is an unqualified supporter of Trump’s tariffs. He said the president has approached the issue in a “ham-handed way” by announcing across-the-board tariffs of 25 percent on steel and 15 percent on aluminum imported from all countries and then agreeing to exemptions on a case-by-case basis.

It would have been better to hit China with 50 percent tariffs and then build support among others nations to follow suit. “Build a wall around China,” he said.

Related: ‘We Are Going to Proceed with Our Tariffs’ on China, Mnuchin Says

Baughman countered that the threat to the military is exaggerated.

“The Defense Department disagrees,” she said. “And they put that in writing … I defer to them.”

And if China is engaging in unfair practices, she said, the tariffs imposed by Trump are aiming at the wrong target.

“We’re shooting ourselves in the foot,” she said. “We’re not shooting them in the foot.”

The way to rebalance the global trading system is to strike better trade deals, Baughman said.

“The president says he’s an ace negotiator. Negotiate,” she said.

PoliZette senior writer Brendan Kirby can be reached at [email protected]. Follow him on Twitter.