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An independent U.S. government agency that most of you have never heard of just issued a blockbuster report full of evidence that further lobotomizies the clearly brain-dead but longstanding and still-prevailing conventional wisdom on a major economic issue facing Americans – how to deal with the global economy.

The agency is the U.S. International Trade Commission (USITC) and the conventional wisdom is that the sweeping, often towering Trump (and now Biden) administration tariffs on metals and on imports from China have cost the American economy on net.

Just as important: The report’s findings also shred the equally enduring belief that such trade protection causes the beneficiary companies or industries to become fat and lazy – and in particular to stop investing in expansion – because it’s so much easier and lucrative to reap higher profits from the higher prices they can charge from their existing operation.

The tariffs most comprehensively examined were those imposed on steel and aluminum imports starting in early 2018. The USITC looked at both their impact on those metals producers themselves, and on the “downstream industries” that use steel and aluminum.

As might be expected, the study reported that the metals levies – imposed to counteract massive foreign subsidies and other predatory practices – reduced imports of the products they covered significantly between 2018 and 2021 (the last year for which full statistics were available). U.S. purchases of affected foreign steel products sank by an annual average of 24.0 percent, and of their aluminum counterparts by an annual average of 31.1 percent

Further, as might also be expected, users of these metals often had to turn to buying domestically produced steel and aluminum in many instances. (In others, where U.S,-made alternatives weren’t available, they needed to eat the increased prices of the imports.)

But here’s where the conventional wisdom starts breaking down. According to USITC researchers, the price of Made in America steel and aluminum barely budged as a result of the tariffs. For steel, it rose by an annual average of 0.74 percent between 2018 and 2021. For aluminum, these increases were 0.87 percent. That sure doesn’t sound like price-gouging.

And one big reason undermines another claim of the tariff conventional wisdom. These prices hikes were so modest due significantly to output increases of these metals. And the higher output wasn’t due simply to the (modestly) higher prices metals-makers could charge. It reflected greater quantities of steel and aluminum that were manufactured. Between 2018 and 2021, because of the tariffs alone, steel companies boosted production volume (not dollar value) by an annual average of 1.9 percent and aluminum companies by an annual average of 3.6 percent. (See the table on p. 21.)

In fact, as the report notes, “Many domestic steel producers announced plans to invest in and greatly expand domestic steel production in the coming years” and capacity utilization in the industry hit a 14-year high in 2021. That’s resting on their laurels?

But the worst blow delivered by the report to the conventional wisdom was to the claim that the metals tariffs damaged the U.S. economy overall because whatever benefits the metals sectors enjoyed were completely swamped by the harm done to much larger metals-using sectors. (Here’s a detailed version. Unlike the USITC study, it focuses on employment and not output impacts, but undoubtedly there’s a pretty close relationship between the two.) According to the USITC, nothing of the kind happened.

As stated in footnote 342 on p. 125, thanks to the tariffs, steel production climbed by $1.90 billion in 2018, by $1.86 billion in 2019, by $0.92 billion in 2020, and by $1.33 billion in 2021. That adds up to $6.01 billion.

Aluminum production was $1.74 billion higher in 2018, $1.72 billion in 2019, $0.88 billion in 2020, and $0.92 billion in 2021 (footnote 347 on p. 126). That adds up to $5.26 billion. Add these steel and aluminum totals, and you get $11.27 billion in production gains by value attributable to the tariffs.

On p. 132, the USITC estimates that the tariff-induced production decline of steel- and aluminum-using industries averaged $3.40 billion from 2018 through 2021 – or $13.60billion in toto. So American output did indeed fall overall?

Not so fast. As the authors note (p. 125), the annual impact of the tariffs decreased during these years because the percentage of metals imports covered by the tariffs shrank – in part due to deals struck by Washington with various foreign metals producers to end levies on their products in return for agreeing to end illegal practices like dumping and to work harder to prevent previously tariff-ed Chinese metals pass through their countries to America via customs fraud.

So it’s likely that the gap between the U.S. metals output increases generated by the tariffs and the users’ output losses generated by the levies – pretty measly to begin with – would have shrunk and even vanished completely had all the tariffs remained in place. And who can reasonably rule out the possibility that the tariffs would have wound up boosting more American manufacturing production than they reduced – especially if the metals users were able to increase their production despite higher costs by improving their productivity. (See this post for a fuller discussion of the relationship between import use and productivity.)

The report didn’t look at the downstream effects of the much greater tariffs on Chinese goods, but presented evidence that they’ve been economic winners for the United States as well. As the study concluded, the China tariffs per se – also imposed to offset systemic economic predation by the People’s Republic – cut the value of Chinese imports by an annual average of 13 percent, and increased the price of domestically produced competitor products and the value of domestic competitor production by an annual average of 0.2 percent and 0.4 percent, respectively. between 2018 and 2021.

In other words, the China tariffs raised domestic production twice as much as domestic prices. And the problem is….?

The USITC authors admit that their model for evaluating the tariffs can’t capture all their effects. And their conclusions certainly don’t mean that all tariffs will work splendidly all of the time. But it’s arguable that for all the trade liberalization achieved since the end of World War II, protectionism and mercantilism by foreign governments remains widespread.  The USITC report strengthens the case that comparable U.S. responses should be used much more often.     

P.S. I published a detailed look at the impact of the 1970s and 1980s tariffs (including those imposed during the Reagan years) back in 1994 in Foreign Affairs and reported similar conventional wisdom-debunking findings.