President Trump’s new tariffs on imported steel and aluminum have caused a predictable furor. What’s harder to predict is the effect on the US economy. Trump and his supporters claim these tariffs will significantly reduce the trade deficit. Others, including most economists, think ‘not so much’. Lumina’s fearless analysts, Kim Mullins and Lonnie Chrisman, wondered whether they could add some illumination with a very simple model. It looks at how the new tariffs would affect domestic prices of these metals, ripple out to the cost of other products that use them, and so affect other imports and exports. They find that reduced imports of steel and aluminum may be almost completely counterbalanced by reduced exports of products that use these metals, with a mean total reduction in trade deficit of only $50M. And that’s before any relatiatory tariffs. Naturally, they represent the inevitable uncertainties with probability distributions.
More at Tariffs blog. You can explore the Tariff model in ACP and test your own assumptions.