News Analysis: How will Trump's steel, aluminum tariffs impact U.S. economy?

by Xiong Maoling, Matthew Rusling

WASHINGTON, Feb. 12 (Xinhua) -- U.S. President Donald Trump signed proclamations on Monday to raise aluminum tariffs from 10 percent to 25 percent and eliminate steel and aluminum tariff exclusions.

Trump claimed that the move would make America rich again and bring businesses and jobs back to the country. But how will the steel and aluminum tariffs actually impact the U.S. economy?

"What this means is that U.S. steel and aluminum prices will be substantially higher than world prices for the foreseeable future," Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, told Xinhua.

"That spells harm for a large number of downstream industries that use steel and aluminum. Those downstream industries employ about 10 times as many workers as the steel and aluminum industries," Hufbauer said.

The veteran trade expert said that some steel and aluminum firms could benefit, but a great many more will lose out, including auto firms (such as GM, Ford, Toyota), electrical machinery firms (such as General Electric, Schneider Electric), as well as aircraft manufacturers (such as Boeing).

Some economists caution that the new U.S. tariffs may increase inflation, adding to the financial strain already faced by many U.S. businesses and ordinary Americans.

"In the short-term we will be paying more for steel and aluminum and everything made with them, most importantly cars," Dean Baker, a senior economist at the Center for Economic and Policy Research, told Xinhua.

In the long term, manufacturers will be reluctant to spend too much money since they do not know if the tariffs will remain in place for a long time, Baker said.

During his first term, Trump imposed tariffs of 25 percent on steel and 10 percent on aluminum imports in 2018, citing national security concerns. He later allowed certain trading partners, including Canada, Mexico and Brazil, to receive duty-free quotas.

Under former President Joe Biden, the United States continued some tariff exemptions introduced under Trump and extended new quotas for the European Union, Britain and Japan.

But in the latest statement Tuesday, Trump said that there will be "no exceptions" for steel and aluminum tariffs.

A 2019 study published by the Federal Reserve Bank of New York showed that Trump's 2018 widespread tariffs on steel and aluminum, as well as tariffs on Chinese goods, along with the countermeasures they triggered, led to a loss of manufacturing jobs in the United States.

"I expect the same outcome, but worse, this time," said Hufbauer of the Peterson Institute for International Economics.

Since the beginning of his second term, Trump has quickly rolled out trade protectionist measures, which have been widely opposed both domestically and internationally.

"The tariffs Trump imposed during his first term were more targeted. This time around, more Americans will feel the impact. Among the imports affected are a whole slew of consumer goods, including footwear, toys, video game consoles and electronics," according to a report by National Public Radio.

"So iPhones, iPads, tablets, laptops -- all of that from Apple would now be hit, which is kind of a big escalation compared to how consumer goods were shielded from most of the first trade war tariffs," says Erica York, vice president of federal tax policy at the Tax Foundation.

When signing proclamations on Monday, Trump also said that his administration was weighing so-called "reciprocal tariffs" on products such as chips, cars and pharmaceuticals, signaling more moves in the tariff arena.

Despite his pledge to reduce inflation during his campaign, Trump's tariffs are expected to drive up inflation and complicate the Federal Reserve's rate-cutting path going forward.

The U.S. Federal Reserve has slowed its pace of interest rate cuts as it braces for uncertainty caused by the Trump administration's policies.

When asked about the Trump administration's new policies, Federal Reserve Chair Jerome Powell said after the Jan. 28-29 meeting that the Federal Open Market Committee is "very much in the mode of waiting to see" what policies are enacted.

"We don't know what will happen with tariffs, with immigration, with fiscal policy, and with regulatory policy," said Powell.