Leibowitz: The real costs of higher tariffs—by the numbers

The Trump administration recently released “The Great Transshipment Scam,” a catalogue of grievances against importers seeking to evade tariffs.

From my view, it fails to discuss a much larger economic effect: the dramatic increase in the cost to customers of steel and other products, whether they buy domestic or imported products. In short, Section 232 tariffs of 50% on most steel imports mean importers must pay 50% more than before. It also means purchasers of domestic steel must also pay a lot more.

A Final Thoughts in SMU earlier this month correctly points out that 50% tariffs effectively provide a signal to domestic producers. Domestic prices have risen by approximately 50% since last summer, when the tariff doubled from 25%. Similarly, the tariffs have simply moved the competitive threshold for imports 50% higher.

Let’s make some assumptions about steel consumption in the United States. First, suppose steel imports are 20% of consumption. Second, assume prices for domestic steel also rise by 50%. (SMU pricing data provides evidence of that.) Imports of steel in 2026 will amount to roughly $60 billion. So, the Section 232 tariffs collected will amount to about $30 billion.

However, that is only 20% of the story. If domestic prices increase to match the tariffs, another $120 billion will be transferred from steel consumers to steel producers in the form of higher prices. The government will not see this revenue. The total cost to steel consumers (and to the economy) will be about $150 billion in 2026.

Admittedly, these numbers are only approximations. But they should be used to compare the costs and benefits of Section 232 tariffs to the American economy. The benefits could be listed as revenues and profits for steel producers, jobs saved in the steel industry and new jobs created, and increased military readiness — a benefit hard to quantify in dollars. These benefits tend to show only a modest gain, in terms of profitability, for domestic steel producers.

True, revenues for steel companies have increased due to higher domestic prices. But the profits of two EAF profitable steel producers, Nucor and Steel Dynamics Inc. (SDI), are nearly the same (or lower) in 2025 as they were in 2018. Recall 2018 was first year of Section 232 tariffs, which stood at 25% at the time. And the last remaining US-listed public company in the integrated market segment, Cleveland-Cliffs, reported a profit in 2018 but a loss in 2025.

How can steel consumers be paying significantly more but producer profits have not increased proportionately? Perhaps producer costs have increased, maybe due to higher input costs (electricity, pig iron, etc.). In any event, shareholders are not necessarily benefiting to any great extent.

Interestingly, import penetration has not fallen as much as it did in 2018, when the steel tariffs were first imposed. The best information available from the US International Trade Commission is that the increase of tariffs from 25% to 50% in 2025 resulted in steel import penetration decreasing five percentage points, from 23% to 18%.

The effect of tariffs on the domestic steel jobs picture is clearer. The figures are no compliment to the higher tariffs. Measured as the cost to steel consumers of steel jobs saved (100,000 workers, more or less, nationwide), that works out to about $1.5 million per job saved per year. Measured as the cost per new job created (about 5,000 jobs nationwide), the cost per job is staggering.

It is harder to assess numerically the benefit of tariffs to national security. The tariffs thus far have not increased domestic capacity utilization above 80%, and that goal is probably not realistic. And, as I’ve reported before, the value of steel production to national defense has been declining. Drones are now the focus of much more attention, and steel has little to do with producing drones. Across the board, weapons of war rely less on steel than they once did.

So why is my mind not boggled by the competitiveness of imports despite the higher tariffs? Mostly, it’s because the replaceable imports (those that compete directly with domestic production) were already washed out of the system by 2019. So, the demand for imports has become relatively “inelastic,” as economists would say. Increasing tariffs further would not reduce imports much, unless domestic production rises for products that are mostly provided by imports, or unless domestic demand for those products falls.

The former is not likely, because there is little incentive for domestic steel producers to increase production of those products. The latter is, I am sure all would agree, not desirable.

So, the imports, according to most analysts, are likely here to stay, at least in the absence of major disruptions.

Which brings me to the recent announcement regarding the “Transshipment Scam.” Stepped up enforcement by Customs of transshipment arrangements will certainly help catch a few bad actors. But the problem is much larger than that. Some of the transshipment is through new enterprises in new countries that change the country of origin of imported goods. The differential tariffs provide an economic opportunity to do that. And they may be entirely legal.

As I see it, the tariff regime may finally have run its course. And it will, if maintained, have more and more adverse effects on the American economy.