Trump team wildly underestimated the costs of tariffs

When the Department of Commerce opened up the section 232 tariff exclusion request process in March, they did not expect it to be so popular. They did not expect that so many manufacturers in the United States would ask for an exclusion from the 25-percent and 10-percent tariffs on steel and aluminum. They were wrong. 

At the time of its announcement earlier this year, the Commerce Department estimated that it would receive 4,500 exclusion requests from the steel tariff and 1,500 from the aluminum tariffs.

{mosads}Fast forward to today. U.S. manufacturers so far have filed over six times that amount and are still filing. Commerce wildly underestimated the number of exclusion requests they would receive.

Commerce Secretary Wilbur Ross went on TV in early March to defend the tariffs and proclaimed they would be “no big deal.” The tariffs, he maintained, would have a “broad” but “trivial” impact on prices.

While holding up a can of Campbell’s soup on live television, Secretary Ross asked, if a can of soup goes up by 2.6 pennies worth of steel, “Who in the world is going to be bothered?” Clearly, a lot more than he thought. 

Ask any U.S. manufacturer, and they’ll tell you they need access to competitively priced raw materials to stay viable in the U.S. market and their export markets.

Some U.S. manufacturers need specialty steel, and the only place they may be able to get that from is abroad. It should come as no surprise that U.S. firms have filed thousands of requests to be excluded from these tariffs.

The process Commerce designed requires a separate request document for each single type of product, so a manufacturer that uses a variety of steel and aluminum can quickly find itself filing several requests. 

Data from regulatory.gov show the average number of requests per firm is 43 for steel and 22 for aluminum. For steel, three firms have filed over 1,000 requests for tariff exclusions, and one firm has filed 2,563 (voestalpine High Performance Metals Corp). For aluminum, three firms have filed over 100 requests, and one firm has filed 639 (Mandel Metals, Inc.).

All of this paperwork takes staff time to process, and there’s a huge backlog. As of Sep. 10, U.S. manufacturers from across the country have filed 28,769 exclusion requests for steel and 3,674 for aluminum.

Steel and aluminum producers can file objections to a request, and each one of those must also be handled. There have been over 12,000 objections filed for steel and 285 objections filed for aluminum. That comes to 44,539 filings in total. 

Commerce estimated it would take 24,000 hours of Commerce staff time to process these requests (four hours per request). By our count, and using Commerce’s own calculations of four hours per request, it would take 178,000 hours, which is equivalent to over 50 people working full time for nearly two years. And the requests are still coming in.

A cursory glance at Commerce’s own data would have contradicted these predictions. There are 6.5 million American workers in steel-consuming sectors, about 40 times the number working in the steel industry. Increasing the price of something that so many manufacturers need is obviously going to cause grief.

Even some in the legal world saw this coming: “It is highly likely that there will be a flood of exclusion requests,” wrote the international firm of Foley and Lardner LLP. 

We have been here before. The number of jobs lost to the March 2002 steel tariffs exceeded the entire number of people in the steel sector. As documented by the Trade Partnership, “[M]ore American workers lost their jobs to higher steel prices than the total number employed by the U.S. steel industry itself (187,500 Americans were employed by U.S. steel producers in December 2002).”

Wilbur Ross is not the first to fall for the fallacy of protectionism, and he won’t be the last. But there is a reason for the consensus among economists that increasing costs to trade causes more harm than good.

Just as we have seen before, these tariffs increase the costs of doing business, hurt investor confidence, disrupt efficient international supply chains and stoke a protectionist and populist backlash among some of our greatest allies. 

Commerce wildly underestimated the number of exclusion requests, because they wildly underestimated the costs of the tariffs.

Christine McDaniel, a former senior economist in the White House Council of Economic Advisors and deputy assistant secretary with the U.S. Department of the Treasury, is a senior research fellow with the Mercatus Center at George Mason University.