The tariffs on steel and aluminum signed by President Donald Trump represent a big shift in American economic policy and have the potential to generate major economic changes at home and abroad. But for most Americans — especially those who aren’t buying steel and aluminum by the ton — this can all seem pretty abstract.
What is a tariff? Essentially, it’s a tax on goods that are imported from outside of the country, usually used to make foreign goods more expensive and give a boost to the home-grown industries they’re competing with.
Well aware that the vast majority of the population isn’t steeped in macroeconomics, GOBankingRates talked with David Payne, staff economist at The Kiplinger Letter, to get a better sense of how the tariffs will affect American workers and consumers.
Tariffs Will Make Cars, Homes, Appliances Costlier
One of the more predictable effects of the tariffs is an increase in price on goods that use a lot of metal — particularly cars, houses and appliances.
“We expect that steel tariffs are going to add about $200 to 300 to the price of a car,” said Payne. “We expect that, along with the lumber tariff [announced in November], the steel tariffs … are going to add about $5,000 to the price of a house.”
However, other purchases you might not immediately associate with imported metals could end up costing you more at the register moving forward.
“Categories such as electrical appliances could be a little bit more because metal is a bigger part of the total product,” said Payne.
Tariffs Should Benefit Certain Industries but Hurt the Overall Economy
President Trump made a point of emphasizing how the tariffs would benefit steelworkers during his ceremony on Thursday, calling steel and aluminum production “bedrock, backbone industries of this country.” And, if his main goal is to boost employment in those industries, Payne sees the policy as probably being effective.
“I’m figuring that there will be about 10,000 jobs created in U.S. steel mills,” Payne said.
However, the net result for the American economy and job market is most likely going to be negative. Payne predicts job loss for three reasons: “One is that you could have other countries retaliate. So there could potentially be some job losses from those actions,” he said. “You could also have a slight reduction in consumer demand from the higher prices of cars and other products, and that might hurt employment in those industries. And finally, you could have companies that rely on steel or wood inputs, they could decide to relocate their production facilities out of the country and avoid the tariffs that way. And so there’s potentially job losses from that as well.”
The key factor is that many different industries rely on cheap materials, and however much metal producers might benefit, more manufacturers will be taking a hit.
“[There are] metals that are used in all sorts of things,” said Payne. “The fabricated metals industry is pretty large, and those products are used as inputs into a lot of things: airplanes, cars, the defense industry — a lot of stuff … If you add everything together, there will actually be job losses instead of job gains.”
Though Gains Are Localized, Losses Are Across the Board
The regional effects of the tariffs are likely to be varied, with the downside felt across the board but benefits being localized to those regions that produce steel and aluminum.
“The negative effects are pretty diffuse across the entire country,” he said. “The positive effects are pretty concentrated, typically. [The] Midwest is the primary steel producing part of the country. Western Ohio, Indiana, Western Pennsylvania … those areas do benefit from these actions. But those states also have very diverse economies, so there’s going to be negative effects on all those states as well.”
Though there might be gains for steel plants, plenty of other tangential industries are likely to have to scale back when the cost of the metal they use goes up.
“A lot of the fabricated metals plants, so, for example, stamping shops, most [of] those are located in the Midwest to be close to the auto industry,” said Payne. “I would be surprised if any particular state would have a positive balance from [the tariffs].”
The Consequences of a Trade War Could Be Significant
Of course, beyond the immediate impacts of costlier imported metal is the potential for a broader impact on American industries caused by trading partners enacting their own tariffs in retaliation. That could mean that plenty of industries that don’t have any skin in the game with regards to steel or aluminum could end up seeing their bottom line damaged by the tariffs.
“There’s likely to be some retaliation from China — from past experience, they seem to be more willing to pull the trigger,” said Payne. “So I would say that American agricultural exports are most at risk from those kinds of actions.”
What’s more, the way other countries target their tariffs can frequently be based on factors that have relatively little to do with the economy and everything to do with applying pressure to America’s political leadership.
“Other countries like to target specific export products for maximum political effect,” said Payne. “I’ve heard mentioned that it’s possible that Kentucky bourbon, which is from [Senate Majority Leader] Mitch McConnell’s home state, and also cranberries, which is a big Wisconsin product, the home state of [Speaker of the House] Paul Ryan, might be in the crosshairs.”
Impacts Should Take Time, but They’re Coming
Of course, one piece of good news for American consumers is that they likely have some time before tariffs trickle down to them.
“It should take a while to filter through,” said Payne. “[Manufacturers] that use steel and aluminum, they buy these things on contract. They have contracts that are generally a year in length that specify a certain price, and also they have their own inventories or stockpiles of material that they can work from.”
So, in terms of prices for products you’re buying in the near term, it might be a while yet before you start to feel the effects — though Payne admits some products might use the headlines to excuse short-term price hikes even if they aren’t feeling immediate impacts. But, if you have certain big-ticket items you’ve been delaying a purchase on, it’s possible that you might be able to save money by making a decision sooner rather than later.
Click here to read more about how political conditions affect the stock market.