President Donald Trump announced his intention to institute new tariffs on aluminium and steel, ostensibly to support US jobs.
President Donald Trump announced new tariffs, or import taxes, on aluminium and steel Thursday. The taxes are likely to have negative economic consequences for other industries and consumers alike, and a simple chart from Econ 101 illustrates the basic problem.
The basic idea is very intuitive – as the price of a good goes up, producers will be willing to supply more of the good, but consumers will demand less of the good. Markets are in equilibrium when those two groups match up – the right amount of goods are sold at the right price so that production exactly matches consumption.
Tariffs interfere with that happy state. Taxing imports of a good like steel or aluminium increases the price of those goods for consumers, including other manufacturers that use the items. Higher prices mean a smaller quantity of the product will be demanded, as described above.
Still, Mikkelsen and Zhang pointed out, "the risk is retaliation by other countries and trade war, which can more than negate any benefits of a tariff," as other countries raise tariffs on US goods and services, hurting domestic exporters.