On average, wages for U.S. workers are expected to rise 3% across the board this year, but for U.S. steelworkers, they’re in for an even bigger treat.
A Tale of Tariffs
President Trump has imposed a 25% tariff on steel, and a 10% tariff on aluminum imported from nearly every foreign country. As you’d expect from basic supply and demand, the increased cost of foreign steel has led to less of it. As of July, U.S. steel imports dropped off 10.2%.
It goes without saying, high steel prices are good for those in steel-producing industries. As a result, according to Reuters, “United States Steel Corp workers are set to get the biggest wage jump in at least six years under a new deal negotiated with the company, providing early signs that gains from U.S. President Donald Trump’s clampdown on foreign imports are finally trickling down. The agreement, reached on Monday, proposes a cumulative 14 percent wage increase over a four-year period.” While a 3.5% annual raise for four years may not seem like much compared to a 3% rise in wages nationally, keep in mind that 3.5% is 17% higher than 3%. And none of this includes bonuses or profit sharing that workers will receive.
U.S. steel posted an incredible 60% increase in pre-profits in their fiscal quarter ending in June, helping enable this pay raise in what has historically been a shrinking industry.
Winners and Losers
Of course, every coin has two heads. There are steel producing industries (which benefit from higher prices of steel), and steel-consuming industries (which are negatively impacted by tariffs). The auto industry, in particular, has suffered from tariffs on steel. Ford CEO Jim Hackett estimates that the steel and aluminum tariffs Trump imposed will cost the company $1 billion in 2018 and 2019. BMW and Honda are reporting similar problems, as all consume a large amount of steel.
There are far more workers employed in steel-consuming industries (6.5 million) than steel producing industries (140,000).
Tariffs create a system of winners and losers, and Trump is well aware of this. Trump isn’t using tariffs to play God with the economy like prior Presidents have, but rather to give himself leverage at the negotiating table. During an appearance on CNBC, White House legislative director Marc Short explained that Trump wants trade to be a “level trading field,” and “The tariffs are part of an effort to get us to hopefully one day where we have true free and fair trade, in which there are no tariffs.” Others familiar with Trump have echoed the same.
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In other words: if everyone else is going to have tariffs on our goods, we might as well have retaliatory tariffs against theirs. Other nations only have two options; to further increase their tariffs in retaliation to ours (in which we’d simply reciprocate with more higher tariffs of our own), or to consider removing tariffs altogether.
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