ACTUALLY, TARIFFS DO MATTER.

• Author: de Rugy, Veronique
• Position: ECONOMICS

IN A RECENT tweet, President Donald Trump described tariffs like the ones he has imposed on America's biggest trading partners as "the greatest!" Rather than correct his boss' delusion, Commerce Secretary Wilbur Ross suggested import taxes on steel and aluminum could in fact be the elusive free lunch we've been waiting for.

In written testimony for the Senate Finance Committee, Ross said a 25 percent tariff on steel imports would lead to the reopening of closed mills, the maintenance of a skilled workforce, new investment in needed R&D, and a potential increase in total production, all of which would allow the domestic steel industry to "achieve long-term viability." While doing the cable news rounds, he added that this miracle would be achieved at a cost of only a few cents per item and would have "a negligible effect" on the economy.

Republican and Democratic senators didn't buy this fantasy, and neither should you. Even if it were the government's role to artificially inflate one sector's profitability, the American steel industry doesn't need the help. It already produces 70 percent of the steel consumed in the U.S., and its executives are richly compensated for it.

Domestic steel output is also near an all-time high, despite a large reduction in the sector's workforce since its peak in 1956. As the Commerce Department's own January 2018 report shows, that decline in jobs predates the competition from China and is mostly the result of innovation and industry consolidation.

Ross isn't the only person to claim that imposing tariffs on a wide array of goods won't cause America to suffer that much. Some argue that a 25 percent import tax on $34 billion worth of Chinese goods is a drop in the bucket compared to our $20 trillion economy. But that's a bogus justification--international trade is less than 20 percent of U.S. gross domestic product, and trade with China amounts to just 3 percent. So yes, the economy-wide effects of import taxes are both undeniably negative and undeniably small when measured against our giant economy as a whole.

What's not insignificant is the negative economic effect on industries that rely on the product being taxed. In 2002, the U.S. imposed similar tariffs in the name of protecting America's 190,000 steel employees. All it did was allow domestic producers to jack up the price of American steel. Meanwhile, 200,000 people lost their jobs in downstream sectors...