Despite objections from fellow Republicans in Congress, President Donald Trump has his finger on the button to launch a trade war by putting tariffs — another word for taxes — on imported steel and aluminum.
Would that be good or bad for Kentucky? The answer is yes.
Most economists — and most Republicans — are against protectionist tariffs because they think free trade is a good idea. The trouble is, free trade is not always fair trade. A lot of countries cheat and subsidize their industries so they can undercut foreign competition.
Trump has griped about this for years, and in his populist presidential campaign he promised to slap tariffs on those countries he considered cheaters. This move would keep that promise.
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Another problem is that free trade creates distinct winners and losers. Trade agreements and government policies have done little to help the losers, especially displaced blue-collar workers. That is one reason many of them voted for Trump.
A good example is how the North American Free Trade Agreement and similar pacts since the 1990s wiped out Kentucky’s garment industry and other small manufacturing. Kentucky factories closed and moved overseas, and many small towns have yet to recover from the loss of those jobs.
Unless his own party can stop him, Trump says he will put a 25 percent tariff on imported steel and a 10 percent tax on imported aluminum. The idea is to make foreign steel and aluminum more expensive and domestically produced metals cheaper, boosting their sales and creating more jobs at U.S. factories.
This could have clear benefits in Kentucky. Although many people don’t realize it, this state is one of the nation’s largest aluminum producers, with 38 plants and 42,320 employees, according to the Aluminum Association. Gov. Matt Bevin is giving Braidy Industries millions in state incentives and investment to build a $1.3 billion aluminum rolling mill near Ashland that would create another 550 jobs.
Century Aluminum cut production in half at its Hawesville plant three years ago, blaming subsidized imports for depressing prices. The company says Trump’s tariffs would allow it to invest $100 million at the Hawesville plant and bring back 300 jobs.
There also are a number of steel and iron production facilities in the state, and steel tariffs could allow many of them to hire more workers, too.
On the flip side, Toyota, which employs 8,000 people at its Georgetown assembly plant, has warned that the steel and aluminum tariffs would raise the cost and prices of its and other automakers’ vehicles. Economists estimate that could amount to at least a couple hundred dollars per car. That could hurt sales and cost jobs at automakers and their suppliers.
Higher steel and aluminum prices would raise the cost of other consumer goods, too, from beverages in cans to washing machines and refrigerators like those made at Appliance Park in Louisville.
But a potentially bigger threat for Kentucky is that Canada, China and other trading partners whose companies would be hurt by Trump’s tariffs would retaliate by slapping tariffs on American goods sold in their countries.
The European Union has already hinted that it would retaliate with tariffs on Kentucky bourbon to get the attention of Senate Majority Leader Mitch McConnell.
The Kentucky Distillers’ Association issued a statement saying such tariffs would “harm consumers through higher prices and more limited product availability, and significantly threaten the distilling renaissance that is creating industry jobs and generating billions in capital investment.”
Bourbon is booming, with 17,500 jobs in Kentucky. If tariffs caused overseas sales to drop, that could cost Kentucky jobs.
Other Kentucky industries could be hurt, too, depending on what products other countries to choose in target in retaliation. The end result could be the loss of hundreds of jobs, offsetting job gains in the aluminum and steel industries.
So what’s the bottom line for Kentucky? If you’re a worker, it depends on whether you make aluminum or bourbon, steel or whatever else another country decides to target with tariffs.
If you’re a consumer, a trade war will just cost you money, with one possible exception. If tariffs depress overseas sales of bourbon, an oversupply could lead to cheaper prices in Kentucky, at least temporarily. That’s not much consolation, but it could help ease the pain.