The American Keg Co. in Pottstown, Pennsylvania, reports on their website that they are “The only manufacturer of stainless steel kegs in the United States.” During a National Public Radio interview, Paul Czachor, the company’s CEO, stated that they used “100 percent domestic steel.” So why is Czachor laying off 10 of his 30 employees after President Donald Trump placed tariffs on imported steel?

According to The Wall Street Journal, “Steel prices rose by 4 percent the day Trump approved the tariffs on March 8” and that since Trump took office, “prices for American raw steel are up by more than 35 percent.” I asked economics professor Kevin McIntyre of McDaniel College to explain why American steel prices would increase when tariffs are placed on imported steel. He stated that steel prices, just like aluminum, oil and other globally traded products, are set “in large global markets” and it is difficult for American steel producers not to increase their prices in line with world prices.

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Because of the increase in American steel prices, it now costs about $20 more ($115) for the American Keg Co. to produce a keg than one available from China for $95. Moreover, there are no tariffs on imported kegs. What is going on at the American Keg Co. in Pottstown is going on all over America. Companies that use steel and aluminum, domestic or imported, are having to pay more for their raw materials. This forces them to increase their prices and decrease their competitiveness.

A close look at trade deficits reveal a complicated issue. One significant variable is the wealth of each trading nation. McIntyre made the point that the United States is a wealthy country and, thus, “should be buying more goods and services, no matter where they come from.” Some even suggest that having greater purchasing power than other nations should be considered a trade surplus, not a deficit. Indeed, it would seem unreasonable to expect a smaller, poorer country to purchase the same amount or more from the United States than we are able to purchase from those countries.

Do trade deficits have negative implications for some American companies? Yes, and I believe that Trump is trying, in his clumsy way, to help those companies. But the implications of trade deficits are not all negative, and efforts to decrease trade deficits with tariffs can make things worse when one looks beyond a single industry and at the bigger picture.

Do trade deficits mean that some people will lose their jobs? Yes. But these estimates, while wildly exaggerated, are very small compared to the upside of cheaper raw materials and products for the majority of Americans and American companies.

Many analysts report that much of the decline of the U.S. steel industry over the last 50 years has more to do with automation than competition from foreign steel. Robots, it seems, can work all day and night, and can produce steel products faster and more efficiently than humans. Tariffs will not slow the continued progression of automation. As stated by Joseph Schumpeter, former economics professor at Harvard University, “Industries wanting tariffs are usually those which are losing international competitiveness” and “some argue tariffs can merely prolong the economic inefficiency of supporting inefficient firms.”

The repercussions of tariffs can be significant. Consider if just one country, China, responds to American tariffs with their own tariff on, for example, American produce, such as corn or wheat. According to Forbes, 2.2 million American farmers would be hurt. In a second example, China may respond by deciding to purchase airplanes from Airbus in Europe instead of Boeing in Seattle. Boeing, alone, has about 141,000 employees compared to 150,000 American steel workers. Multiply the effects on Boeing by thousands of American businesses impacted by a trade war just with China. Now multiply those effects beyond China to the rest of the world where, according to economist Kimberly Amadeo, $2.3 trillion in American products are exported each year.

Regarding Trump’s tariffs, McIntyre stated that, “My hope with all of this is that it is a negotiating ploy” on the part of the Trump administration. McIntyre was referring to the fact that after Trump announced the tariffs he gave waivers to many countries or postponed the tariffs while negotiations, according to Trump, could secure “better deals.” This would be helpful, said McIntyre, if better deals can be negotiated. However, he warned, if this turns into a trade war, everyone pays more and no one wins.

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