Biden’s newest proposal for steel tariffs join a long list of tariff policies that ignore the unseen damage that will be done to the U.S. economy by raising them.
This week, President Biden announced that he would seek to triple tariffs specifically on Chinese steel imports from 7.5 percent to 25 percent. This is an aspect of his campaigning in Pennsylvania where he seeks support from blue-collar steel workers who face competition from foreign steel imports. Both candidates have leaned away from free trade and into protectionism as a cheap political tactic. Voters and donors who benefit from the artificially high prices caused by tariffs will flock to whichever candidate can pander to them best. Trump has campaigned on a baseline of 10 percent tariffs across the board and a minimum of 60 percent on Chinese imports.
Both candidates have advocated for these taxes on imports, on the platitude of helping native manufacturing, but largely as an electoral policy. The implications of the policies are destructive and costly. Not to mention, they are often paradoxical.
The paradox, though neither campaign has necessarily used this messaging, is the use of tariffs as a source of revenue and to protect domestic industry. Most economics students are introduced to the concept of the “Laffer Curve” which depicts the idea of an optimal point of taxation which brings about the most amount of revenue without dissuading enough consumption that would lead to a decline in such. Finding the correct rate of taxation is likely impossible, as there is no means of economic calculation to find the correct rate. But if policy makers set both as a goal, they can only have one or the other. They can either dissuade foreign trade enough that it stops foreign consumption in favor of domestic, or they can collect more revenue (which necessitates consumption of the good continuing).
But it is the unseen that is truly troubling. President Biden’s tariffs would go on top of an already existing 25 percent “national security” tariff making steel production even more costly. These tariffs will raise the cost of goods used to make them. Tariffs impose higher costs on the consumer of these goods. Not every steel product is a direct consumer good. Humans typically do not consume steel for their own sake, so steel alloy is used in the creation of other producer’s goods or in the creation of consumer goods. By enacting further tariffs, the cost of creating these consumer goods will rise. Steel used to create, for example, buildings rise in price due to tariffs, and thus less buildings can be made. Steel is used to make bicycles, buildings, automobiles, stainless steel, and much more. Steel goes into every aspect of our days and production processes.
Artificially raising the cost of goods used by every American and every business, in the creation of goods and services makes life more costly for every American. A 25 percent tariff itself is staggering. Raising the price of these resources by a quarter of their market value will add another added cost to everyday Americans. While it may win cheap electoral votes from those that initially benefit, it will make the lives of every American more expensive. American voters should see beyond the initial effects of tariffs and realize them as the backhanded gifts they are.
