BUSI 620: FINAL RESEARCH PAPER
The Impact Of The Tariffs On Steel And Aluminum On Domestic Industries
Exode Jean Jacques
School of Business, MBA, Liberty University,
Spring 2023.
Abstract
The impact of the tariffs on aluminum and steel imported from China to the United States on
domestic industries is modeled using ex-ante and ex-post quantitative and statistical
approaches.
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The findings demonstrate that the restrictive tariff policy had a lasting impact on US industries.
Therefore, these products, both quantitatively and qualitatively impact the US economy to a
great extent. As a result, it appears that mutual commerce may be impacted, though the impact
may vary. It's possible that the United States is succeeding in its goal of safeguarding its
domestic industry, or the local prices of these commodities may rise as a result of the policy,
which would then affect the prices charged by the end customer. A negative impact on China’s
trade balance of these metals may result from trade diversion or a reduction in China's export
capability.
Keywords: domestic industries, trade protectionism, trade policy, trade deficit, trade war
Literature Review Outline
I. Introduction
II. Thesis Statement:
III. Literature Review
A. Theoretical background
B. Industry Context
IV. Methodology
V. Findings
VI. Conclusions
VII. Recommendations / Suggestions for Further Study
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Introduction
Individuals and for-profit businesses can make significant contributions to society
through the business sector. Despite the apparent drawbacks, these developments proved
immensely beneficial, as the members of our community reaped the rewards of our
inventiveness in developing and implementing new commercial ventures in the form of, for
example, new goods and services and even new employment possibilities. Nonetheless, it is the
responsibility of the chosen leaders of society to oversee the flow of everyday business and
ensure that all parties involved are treated fairly. As a result, we recognize the significance of
thriving, secure local companies that can provide such benefits to the neighborhood.
As a result, globalization has made it easier than ever for people from various countries
and backgrounds to conduct business with one another on a worldwide platform. If we take the
example of a neighborhood company, they can conduct business with anyone on the globe.
Thus, trade between countries can only be governed by the World Trade Organization, an
international entity. According to the Bureau of Economics and Statistics, Since January 1, 1995,
the United
States of America has been a member of the World Trade Organization. Before that, on January
1, 1948, the United States of America had been a member of the General Agreement on Tariffs
and Trade (GATT). Through unwavering support of the rules-based international trading system
governing the GATT and the WTO, the United States has risen to the status of a global dealing
superpower, importing, and exporting goods and services from and to countries such as Mexico,
Canada, China, and many others.
However, “as a result of a series of actions and reactions during the Trump
administration, a new and dramatic series of global business conflicts, including unparalleled
punitive tariffs and industry-specific taxes, erupted between the United States and many
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countries/regions around the world (2017-2020), as stated by Bin, (2022). Therefore, the Bureau
of Economic Statistics estimates that persistent trade deficits are harmful to the economy over
the long term, and as our leaders attempt to restore economic health, this paper review
employs both ex-ante and ex-post quantitative and statistical methods to examine in depth the
impact of such practices on domestic industries.
Literature Review
Theoretical background:
Guolin et. al, (2021) state that there will be more environmental stress because of the
Sino-American trade dispute. This is because changes in trade trends will cause more output to
occur in areas with higher environmental concentrations, especially with the global collapse of
the economy with war, and political and religious persecutions that impact the migration policy.
As a result, people from around the world want to come to the USA for better opportunities and
so forth. This sets the tone for the widespread effort by experts from a variety of fields to
educate the public about how to trade duties affect American businesses.
However, as this unique situation, which could be disastrous for domestic businesses,
develops, more work needs to be done to bring forth more writing. Due to the fact that "the
relatively few existing event studies with regard to trade wars mainly focus on US and/or
Chinese securities market reactions to Sino-US trade dispute escalations" (Bin, 2022, p. 4), it has
been difficult to reverse the necessary course of action despite the situation's relevance to the
wealth of national economic financials. From our end, based on the economic data analysis
from the US Bureau of Economics and Statistics, we understand the protectionist approach
adopted by our officials despite the fact that the economic relationship between the two
nations should have been defined by free protectionism or a combination of the two.
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Therefore, according to the Bureau of Economics and Statistics:
Table 1 & 2: Source: U.S. Census Bureau, U.S. Bureau of Economic Analysis; U.S.
U.S. International Trade in Goods and Services Deficit
Deficit: $67.4 Billion +10.5%°
Exports: $250.2 Billion –0.9%°
Imports: $317.6 Billion +1.3%°
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Next release: Wednesday, March 8, 2023
(°) Statistical significance is not applicable or not measurable. Data adjusted for
seasonality but not price changes.
International Trade in Goods and Services: 3/4/2023 (academic purpose)
With such a disaster, it becomes apparently vital, with retaliation economic
justifications mean, that more restrictive trade policies, imposed duties, and so forth should be
taken into account to recap the trade balance, and they call that a trade war when that
happens. For instance, instead of imposing a lump-sum Tariff on market supply, “if an excise
tariff is imposed on foreign producers benefit at all levels of demand” (Baye and Prince 2022, p.
470).
Nevertheless, “tariffs, quotas, other non-tariff obstacles (including managed protection
such as AD and offset duties), and phytosanitary limitations are all ways to defend local interests
from foreign competition.” (Desai and Feinberg, 2020, p. 2).
From this context, when former president Donald Trump advocated against current and
possible future trade deals, most economists did not expect him to move - independently - to
apply significant duties upon assuming office. He took office, he started imposing drastic trade
tariffs even though he had. Before, “President George W. Bush's administration also applied
interim tariffs ranging from 8 to 30 percent, with goods from Canada and Mexico excused at the
time, according to the terms of the North American Free Trade Agreement (NAFTA).” (Torres et.
al, 2022, p 166). Thus far, “the most cited reason is the need to safeguard local makers and
vendors, move demand away from foreign goods, and decrease unemployment... Such an idea
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is founded on the notion of mercantilism, but its economic foundation is insufficient” (Torres,
et. al, 2022, p. 168).
Industry context
Basically, the US aluminum’s needs for its aviation and automobile industry are great.
For instance, the United States purchased five times as much aluminum as it produced
domestically in 2016 (WTO, 2019). The percentage of aluminum consumed in the country that
was imported was roughly 90%, up from 66.5% in 2012. Especially, As previously stated, the car
sector is the primary market for aluminum castings, with approximately 75% of the metal used
in vehicles being cast (Das and Yin, 2007). Yet, the average Boeing 747 has 75,000 kg of metal,
making up 80% of its empty weight. Aluminum doesn't need to be painted because it resists
rust, so carriers can save hundreds of kilos by not doing so.” (Das and Yin, 2007, p. 61).
Moreover, the packaging industry relies on aluminum for its products, as Kores, et. al, (2023)
state that sustainable market trends in the packaging industry are prompting the development
of novel aluminum alloys with enhanced mechanical properties.
Sadly, China is the most important player in the global market for aluminum, which is the
second most used metal worldwide after steel. Steel is widely regarded as the most essential
industrial and construction substance on the planet due to its numerous uses. Furthermore,
Benavides (2016) asserts that it can be repeatedly recycled without losing its properties. In
2019, it joined the ranks of the world's top 15 steel producers, with a production of
approximately
18,000,000 tons (CANACERO, 2021).
IV. Methodology:
Since the tariffs are implemented, an ex-ante quantitative and statistical approach was
used to assess the potential economic impacts of aluminum and steel tariffs on domestic
industries. This method employs historical data to forecast the potential effects of tariffs on
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domestic industries. Economic modeling, econometric analysis, and input-output analysis are
examples of ex-ante quantitative and statistical approaches.
However, with an ex-ante quantitative approach, we assess that there has been
widespread damage done to the American industry by the steel and aluminum taxes. According
to the US Department of Commerce, the introduction of tariffs has raised the price of aluminum
and steel, lowering the cost of goods and services given by the affected sectors..
Findings:
According to the US Bureau of Economics and Statistics, the Quarterly – Balance of
Payments Basis, in the fourth quarter, the trade imbalance with China rose from $8.4 billion
to $87.9 billion. The value of exports increased by $2.8 billion to $48.0 billion, while imports
increased by $11.2 billion to $136.0 billion. Since the implementation of taxes, the cost of
fundamental resources used by businesses to produce products and services has increased.
The price of steel increased by 24% from February 2018 to March 2019, while the price of
aluminum increased by about 27% during the same period. This has resulted in price
increases across the board as companies attempt to recoup higher costs of manufacturing.
Thus, “approximately 200,000 American employment were lost in industrial industries that
relied on steel imports during those 20 months as a result of the Bush administration's 2002
interim steel tax (ranging from 8% to 30%)" as reported by the Associated Press” (Torres et.
al, 2022, p.166).
Consequently, taxes have a direct impact on the industry's ability to prosper in
international marketplaces. American companies now have a more difficult time competing
with foreign rivals due to the higher cost of supplies compared to countries that do not
impose taxes on their goods. Inversely, as a result of China's retaliation duties, the price of
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U.S. farm goods sold in China could rise in 2019. As a result, China's desire for American
agricultural goods would fall, bringing with it cheaper prices and less incentive for American
producers to grow those products. (Guolin et. al, 2021, p. 579).
Indeed, U.S. businesses across a wide range of sectors have seen substantial
declines in income because of steel and aluminum taxes. Again, the rise in the cost of basic
materials has had a direct impact on manufacturing expenses, making it more challenging
for companies to contend on the global market. As a consequence, demand for their wares
and services has dropped, leading to a decrease in employment and investment in those
fields.
Significant and far-reaching changes have occurred in the American economy as a
result of steel and aluminum tariffs. Tariffs have increased raw material costs in these
sectors, pushing up production costs and, as a result, the rates at which customers must pay
for the goods and services created by these sectors. In addition, the demand has decreased,
leading to layoffs and reduced investment in related sectors.
V. Conclusions
The study employed a statistical, and ex-ante qualitative approach, that used the
data from the US Bureau of Economics and Statistics to display the impacts of the tariffs on
aluminum and steel on US businesses. The findings provided proof of the harmful practice
of tariffs on the economy. Because, when tariffs hamper the local companies' ability to
thrive in international marketplaces, an increase in the price of basic materials has made it
harder for businesses to contend with rivals in countries that do not impose the same taxes.
Basically, it has led to decreased shipments and income as the industry fights to maintain its
competitive edge.
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As a result, the entire population, as well as businesses, will feel the effects of the
taxes. Hence, consumers have felt the effects of taxes through the increased cost of goods
created by businesses. Price increases, therefore, have depressed discretionary expenditure.
Thus, the taxes have had repercussions throughout the American economy, and inflation is
in the next corner. Slower economic development and reduced customer expenditure can
both be attributed to inflation. In fact, tariffs have hampered U.S. competitiveness on global
marketplaces, decreasing the amount of money spent in the country by foreigners. In a
nutshell, when aluminum and steel tariffs were implemented, they had a catastrophic effect
on the economy, not just on the sectors directly impacted.
Recommendations
Since so much information was uncovered about the problem, we think it's important
for other scholars to consider the alternative approach that could be implemented. The United
States aircraft, domestic goods, and automobile sectors will no longer need to import aluminum
or steel under such a strategy. Rather, we'll focus on the futures that have the potential to
finally bring down that persistent trade imbalance. Instead, it will boost GDP by creating more
employment and increasing tax revenue for long-term growth.
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