Penny-wise, pound-foolish. So declared a disappointed English lord in response to his heir’s poor financial judgement. Though coined 500 years ago somewhere else entirely, the phrase still means the same thing today in 21st century America—don’t save small amounts of money on something if it’s going to cost you a whole lot more later on.
We can easily say the same about President Trump’s newly announced policy placing tariffs on the raw steel and aluminum other countries sell in the United States.
His goal for these tariffs are indeed admirable—he wants to protect American jobs in steel- and aluminum-producing industries by making these products more expensive for foreign companies to sell in the United States. In turn, he hopes, domestic steel and aluminum producers could face less intense competition, experience less pressure to cut back on labor costs, and ultimately stave off the need to cut American jobs in these industries.
Unfortunately, these hopes are almost certain to disappoint. If fully enacted, these tariffs will raise the cost of steel and aluminum for all of the other American industries that rely on these goods to make their own products—everything from refrigerators and fighter planes to swing sets and beer cans—since they can no longer rely on cheaper foreign imports.
And these other industries employ a whole lot more people than steel and aluminum production. In North Carolina, for example, there are 6,281 jobs in steel/aluminum. In contrast, there are more than 500,000 jobs in the state’s manufacturing and services industries that rely on steel and aluminum products for their own enterprises. This includes the state’s industry clusters that share labor, technologies, and buyer-seller relationships that take raw steel and aluminum from production to assembling boats, airplanes, and soda cans, along with the heavy machinery and engineering services that make these goods.
So to summarize, Trump’s proposed tariffs may protect 6,000 jobs in North Carolina while potentially threatening another half-million jobs in industries forced to pay higher prices for the steel they rely on. This is not a smart policy, and it perfectly exemplifies the idea of being penny-wise with steel jobs and pound-foolish with the many more jobs that rely on steel.
How do we know this will happen? Well, we’ve done this before. Less than 15 years ago, the George W. Bush administration levied 30 percent tariffs on these exact products and they failed to staunch the long-term decline in the nation’s steel and aluminum industries. In fact, they actually cost the nation 200,000 jobs, once the higher prices in steel- and aluminum-reliant supply chains are taken into account, according to an industry-supported study conducted in 2003. As a comparison, the entire American domestic steel industry employed only 170,000 people, so the job losses resulting from the tariffs were greater than the entire industry we were supposed to be protecting. The tariffs proved so spectacularly unproductive that they were repealed less than two years later.
Even worse, these tariffs may trigger a full-on trade war with our closest allies. The European Union has already threatened to place retaliatory tariffs on American exports like blue jeans and motorcycles (both of which are produced in North Carolina). Similarly, Canada is America’s largest market for exported steel—we actually sell them more steel than they sell us—which means that any Canadian retaliation would make it harder for US steel companies to sell their steel at a profit.
At the same time, the President’s tariffs would leave the President’s favorite target for complaining about unfair trade—China—largely unscathed. Although there are a number of ways to hold China accountable for unfair trade practices like devaluing their currency to make their goods artificially cheap in American markets, steel and aluminum have almost nothing to do with this. China accounts for just three percent of all the foreign steel sold in the United States, so it has very little skin in the game at risk from American steel tariffs.
The United States has certainly signed bad trade deals and refused to protect its workers from unfair foreign trade practices that cost North Carolina thousands of manufacturing jobs. And there are good policies that our federal and state governments can pursue to protect American jobs and strengthen American industry—investing in job training, research and development, and enforcing labor protections in existing international trade agreements come to mind. Certainly, repealing recent tax changes that make it easier for companies to automate jobs out of existence would help as well.
But President Trump’s proposed tariffs are not the way to go to protect American jobs. They will threaten more jobs than they will save and potentially trigger a trade war with disastrous consequences for American businesses and consumers.
These tariffs are the very definition of penny-wise and pound foolish.