Steel and aluminum tariffs a big threat to Trump's infrastructure plan

Steel and aluminum tariffs a big threat to Trump's infrastructure plan
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The White House’s push to drive more investment in the nation’s roads, bridges, waterways and airports just hit a serious roadblock — in the form of new tariffs from President TrumpDonald John TrumpShocking summit with Putin caps off Trump’s turbulent Europe trip GOP lambasts Trump over performance in Helsinki Trump stuns the world at Putin summit MORE himself. 

The administration hopes to produce a bill that generates at least $1.5 trillion in new infrastructure investment by “partnering with State and local governments and, where appropriate, tapping into private sector investment — to permanently fix the infrastructure deficit.”

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But Trump’s decision to impose tariffs on U.S. steel and aluminum imports will push infrastructure costs much higher, undermining his “America First” economic agenda.

 

The president’s tariffs — 25 percent on steel, and 10 percent on aluminum imports — are only the latest protectionist ploy that impede his infrastructure push. “Buy America” restrictions currently on the books require all federally funded road, bridge, transit, and airport projects to source steel and certain other “end products” from U.S. producers. The result is to restrict selection and drive up the price of these vital public structures. 

The perverse implications of such regulations are illustrated by New York’s infamous Second Avenue Subway — dubbed the most expensive subway on earth — which had to rip out its brand new fire suppression system after bureaucrats ruled that it did not comply with domestic content requirements.

While “Buy America” applies only to infrastructure that receives federal funding, adding the cost of tariffs to existing price pressures could prompt budget-crunched state and local governments to scrap local projects as they become too expensive.

Even worse, tariffs on steel and aluminum will bring similar cost-inducing miseries to the private infrastructure projects President Trump hopes to bolster under his plan.

Indeed, the American Iron and Steel Institute estimates that 43 percent of U.S. steel consumption goes to the construction industry.​ This includes the erection of vital energy pipelines and the power grid, improvements to freight and passenger rail systems, and modernizing telecommunications infrastructure, such as the burgeoning 5G wireless network.

The cost of the tariffs on steel and aluminum used in these projects won’t be paid for by wealthy companies, but by Americans at the cash register and on their monthly phone and energy bills.

While it is not clear how great the impact of the proposed tariffs will be on the broader $19.7 trillion U.S. economy (steel and aluminum together account for just less than 2 percent of U.S. imports), the effects would likely proliferate far beyond the infrastructure industry.

Steel-using industries employ 17 million Americans in sectors ranging from automotive manufacturing to construction. An increase in the price of imported steel and aluminum would put these jobs at risk.

This happened quite recently, in fact. Steel tariffs imposed in 2002 cost 200,000 hardworking Americans their jobs.

Worse, the overall impact could quickly escalate if tariffs spark a trade war.

Steel and aluminum producers may win in the short term, but American‎ steel and aluminum users and consumers will lose. In fact, tariff hikes are really regressive and counterproductive tax hikes that put the gains made from President Trump’s most recent tax overhaul at risk.

It will be months before we know the full consequences of these tariffs, but tariffs do not protect the “forgotten men and women” of this country or bring back jobs. Unfortunately, the president’s choice of the protectionist tool runs wholly counter to his plan to rebuild America’s infrastructure. As The Wall Street Journal recently noted, it will likely be recorded as “the biggest policy blunder of his presidency.”

Anthony Kim is research manager and editor of the Heritage Foundation's Index of Economic Freedom, and Michael Sargent is a Heritage policy analyst in transportation and infrastructure.