Question

President Trump has proposed imposing a tariff (e.g., a tax) on foreign producers of steel and aluminum who sell their product to the US market.

a) what would be the impact of this tariff on the price of steel and aluminum within the US market after the tariff is imposed?

b) What would be the effect of this tariff on the demand for products produced by US manufacturers who use steel or aluminum in the manufacture of their product, e.g., Boeing airplanes?

c) What would be the effect of this tariff on employment in these industries, e.g. Boeing engineers?

Answer 1

a) After the tariff is imposed on the cheaper imports from China and rest of the world the price of the steel and aluminum will increase considerably. The producers of steel in the world market are more efficient and that is why they are able to produce the same product at a lower cost which the producer in the US can't. After the tariff are imposed the price of the Stel will shot up considerably.

b) As the input price of the goods increased the price of the products using those input goods will increase and people will demand less of those goods. This will decrease the demand for those goods and the production will be affected in the US economy. The world market will demand cheaper goods produced somewhere else.

c) As the production of the goods is getting affected by the high prices the companies will have to lay off some of the employees to maintain the cost-effectiveness of the products they are manufacturing. The jobs will be adversely affected and many employees working at non-essential places will be laid off.