NCPA - National Center for Policy Analysis

Consequences of Steel Tariffs

April 22, 2002

The tariffs on foreign steel are already having consequences, says Bruce Bartlett. The Chinese are resisting opening their market to our goods because the U.S. has slapped large tariffs on their steel.

The Europeans immediately drew up a list of $2.1 billion worth of U.S. goods they may subject to retaliatory tariffs -- which could include the $500 million in U.S. steel exports to Europe annually.

Furthermore, Europe likely will use the ongoing dispute over U.S. Foreign Sales Corporations -- entities created by U.S. law to lower taxes on exporters -- to get even on steel tariffs.

Many people view the tariffs to protect the American steel industry as a defense issue. However, the amount of steel needed for defense purposes is trivial -- on the order of 1 percent, according to defense expert Loren Thompson of the Lexington Institute.

Others believe the erosion of U.S. manufacturing is a cause of economic decline. For instance, columnist Paul Craig Roberts says that the U.S.'s principal exports now are agricultural commodities and other low-tech goods.

  • However, the production of goods as a share of total economic output has never been higher -- in 2000, goods accounted for 40.3 percent of Gross Domestic Product (GDP), up from about a third in the 1950s and 1960s.
  • This does not include the final sale of goods imported from abroad, because imports are subtracted from investment and consumption in calculating GDP. Thus, imports do not add to GDP; only domestic production does.
  • Capital goods are the largest category of U.S. exports (see figure), according to the Commerce Department, accounting for 44.7 percent of exports in 2001.
  • Agricultural commodities, by contrast, accounted for only 6.2 percent.

The case for steel tariffs has still not been made, while the costs continue to rise.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 22, 2002.


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