April 5, 2018

Indiana Economists Weigh In On Winners, Losers In Trump Steel Tariffs

Article origination IPBS-RJC


President Donald Trump’s 25 percent steel and 10 percent aluminum tariffs are designed to make U.S. workers more competitive in the international economy. That could have a big impact on a manufacturing-heavy state like Indiana.

More than a dozen Indiana college professors who study economics or business were polled about their concerns with the tariff’s consequences.

First and foremost, says Jeffrey Bergstrand, a professor at the University of Notre Dame’s Mendoza College of Business, the new steel tariff is big, increasing steel costs 700 percent.

“Average U.S. tariffs are about 3 percent on average for our country and major industrialized countries,” says Bergstrand. “So you go to 25 percent, you’re increasing it eight-fold. That’s enormous.”

While the Trump administration claims the tariff will protect the U.S. steel industry, some worry losing imports will increase the cost of steel, and that will trickle down to negatively impact consumers.

Hanover College economics professor Eric Dodge says the move counteracts any positive gain that might have come from last year’s tax overhaul.

“If the prices of things begin to rise, partly due to bad economic policies, the bonus of the tax cuts will quickly go away due to higher prices of stuff all around us,” Dodge says. “And that’s just so counterproductive to the tax cuts.”

A survey conducted Chicago Booth’s Initiative on Global Markets, asked 40 economists around the country if the steel and aluminum tariffs would improve Americans’ welfare. All either voted in disagreement or strong disagreement to the tariffs enhancing quality of life.

While the steel industry – where Indiana is a leader – might get a boost, Wabash College economics professor Frank Howland says other industries in the state will suffer due to the increased costs of steel and aluminum.

“Probably either wages will go down for auto workers or there’ll be less employment in the auto industry,” Howland explains.

Purdue University agricultural economy professor Wallace Tyner studied some of the impacts.

“There are more consumers of steel in Indiana than producers is the bottom line,” Tyner says. “We do produce steel, a good bit of steel and aluminum, but we have the second largest automobile industry in the country, just behind Michigan.”

He points to Caterpillar, Cummins, Rolls Royce and other companies in Indiana that make use of steel and aluminum noting that those companies costs will go up due to the tariffs.

“One in four people work in transportation manufacturing and all of those companies use steel and aluminum,” says Tyner.

If costs go up and sales go down, fewer people will be needed.

“You can’t just look at what happens to the people that produce the steel and aluminum,” says Tyner. “You have to look at what happens to the people who use those products.”

And other countries could retaliate against the tariff, which might hurt other large producers in the Indiana economy: farmers.

“We export lots and lots of corn and soybeans to the rest of the world. If the rest of the world wants to raise its tariffs, corn and soybeans are definitely targets that they would consider and Indiana would be hurt,” says Howland.

Still, Indiana’s two biggest trading partners – Canada and Mexico – are exempt from the tariff, so that might insulate the Hoosier State. And Manchester University economics professor Sreenath Majumder says even China – at whom the tariffs are aimed – may not be in a fighting mood.

“With China, China exports very tiny amount in terms of steel to America so I’m not worried about retaliation," says Majumder.

Wabash College's Department of Economics Chair Frank Howland says the tariffs miss some of the point, the U.S. is losing far more jobs to automation by American companies than because China imports substandard steel.

“In terms of manufacturing sector in general in the United States, we’re producing as much as in the way of manufacturing goods as we did in the past, just with a lot fewer workers simply because our technology has improved,” Howland says.

President Trump tweeted that he thinks trade wars are good and would help the U.S.

However, all the professors interviewed say no one wins in a trade war. Notre Dame finance professor Jeffrey Bergstrand says there are only losers.

“Universally among international trade economists in this country and the rest of the world is there’s unanimity that this is a really bad thing,” says Bergstrand.

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