Macroeconomic effects of US tariff on steel and aluminium: who would pay the bill?

Abstract

In March 2018, the United States (US) President Donald Trump announced the imposition of a tariff on US imports of steel and aluminium products. This technical report sheds light on the possible macroeconomic impacts of this policy, focusing in particular on exports, value added (VA), output and employment. The modelling analysis considers two possible scenarios to be compared with a baseline in which no tariffs are imposed by the US government. In the first scenario we assume that the European Union (EU) is exempted from the new tariffs. In the second scenario we instead assume that the EU is not exempted, as it has been declared that the exemption is only temporary. Under an EU exemption, the most significant economic effect of the US tariff involves the trade of basic metals' products to the US whose volume would decrease due to the protectionist measure. The most exposed countries would be India, Russia, and Turkey, although the impact of the new tariffs on GDP and employment is negligible. The US metal industry would increase its production, to the detriment of other sectors which would face higher input costs (such as manufacture of electrical equipment, machinery, or motor vehicles and other transport equipment).In a second scenario that assumes no exemption for the EU, EU metal products exports would be lower by slightly more than 1% with respect to the non-tariff baseline scenario. Still, there would be countries hit more severely, like Russia and India. In all cases, though, the overall effects on total exports would be much smaller due to the relative importance of the metal sector in the economy.