February 3, 2020

Chart of the Week: The perils of protectionism

by Fathom Consulting.

In 2018, President Donald Trump imposed additional tariffs on the import of steel and aluminium from almost all countries into the US. Since then, imports of the two products have been falling as the US government had hoped. However, a White House statement recently announced the imposition of further tariffs on products such as nails, drawing pins, and staples. The reason given was that “imports of certain derivatives of aluminum articles and imports of certain derivatives of steel articles have significantly increased”. This is the difficulty with tariffs as active trade policy. Tariffs that may be seen to be in the national interest, whether correctly or incorrectly, are almost always counter to the best interests of the individual economic agents they directly affect. Here, higher costs of steel and aluminium for nail-makers has shifted their supply curve to the left, reducing the number of nails produced and therefore increasing the amount imported to meet the demand. To keep the nail-makers competitive, tariffs must be imposed to protect them from international competition. Economists call this ‘cascading protectionism’.

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