Economist outlines steel and aluminum tariff impacts on Michigan

Mar 6, 2018

Automotive assembly line

President Donald Trump says "we're not backing down" on his push to impose tariffs on imported steel and aluminum despite criticism from fellow Republicans. WGVU’s Patrick Center spoke with an economics professor about those tariffs - and the potential for a trade war – and what its impact could have on Michigan consumers and industry.

“Here in Michigan we make cars. We’re good a t making cars. We make a lot of them.”

Dr. Paul Isely is currently the Associate Dean for Undergraduate Programs in the Seidman College of Business at Grand Valley State University.

“If we look at a tariff on steel of 25% and a tariff on aluminum of 10% that will increase the price of foreign steel, but it will also increase the price of domestic steel because people will buy around that domestic steel and bid up the price. It won’t be quite 25%, but it will go up. For a car we’re looking at $250 to $500, depending on the type of car, in added cost to that car. So, let’s take the flipside. We just at the end of last year had a tax cut here in the United States. And for the average family in Michigan, that will add over the next 10 years about $500 a year. So, essentially if you have to buy a car sometime in the next 10 years the value of the tax cut is completely wiped out by the increase in the cost of car because of the tariff and that doesn’t include the increases in prices we’ll see for other goods like things that are canned or other items that use aluminum and steel…I’m more worried about the next steps in the trade war because the easiest place to retaliate against the United States is in agricultural products. It something here in West Michigan we send a lot of overseas. And we’re already having trouble in other countries just from the change in tenor in the United States about those countries. If we then have them choose agricultural products as the place to retaliate, farmers are far more susceptible to going out of business than a large corporation that has pretty deep pockets and a varied business plan. I think that the damage that we have to worry about here in the Midwest is actually in our rural communities if this trade war actually takes the next step.”

Does Dr. Isely see that happening?

“I would be surprised if it doesn’t happen. It’s the correct strategy for the other countries. You have to inflict enough pain. This is…this is a war of attrition where you want to inflict enough damage on the other side to cause them to blink. The reason our administration is willing to walk into this is they must believe that we can win a war of attrition that the other people will hurt more than we do and therefore will be willing to give up something that we want. I’m not sure if that’s the case but it is what is being bet on when we walk into this type of situation.”

Patrick Center, WGVU News.