Steel Economics: You Don’t Want Everything Made In The USA

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steel

I continue to see a lot of people all over the internet say that we need to “bring these jobs back from China, and build everything here in America”, or closely similar to that. But none of us should really want that. I’ll use steel as an example to show why.

In China, a steelworker’s wages are roughly $3.60 (US) per hour. In the US, a steel worker’s wages are roughly $22.00 per hour, a 511% increase. We’ll assume, for this example, that’s the ONLY cost increase in producing steel here instead of China. Let’s assume also that in cutting off Chinese imports in steel, that it creates 10,000 jobs in the US steel industry that didn’t exist when we imported Chinese steel. At 40 hours a week times 52 weeks per year, that’s an increase to American consumers of US steel of $457,600,000 to create those 10,000 new jobs per year. There are about 160 million people in the American workforce. This increase in steel costs will affect some more than others, and some less than others, but to illustrate my point easier, we’ll assume it affects everyone equally. This increase in steel prices WILL be passed on to consumers. This equates to $2.86 increase per year on consumers.

At first glance, this seems like a nominal figure to create 10,000 jobs, and no one would mind paying this to do so, as I so often hear people say. But what is not realized, is that you have REDUCED my amount of disposable income by $2.86 cents per year. That’s $2.86 times 160 million workers = $457,600,000 that now will NOT be spent in other industries where it would have been spent previously. Therefore, 10,000 jobs that would have existed in numerous other industries where these hundreds of millions would have been spent are lost. Or, if these newly created 10,000 jobs employed people who were previously unemployed, then 10,000 other jobs are lost elsewhere in the economy. On net, overall, employment in the US is unaffected. It is true that 10,000 steelworker jobs were created, but to shift money to that industry out of every worker’s pocket cost 10,000 other jobs, in various other industries, that that same money would have been spent supporting otherwise.

Now, for the REAL damage it does to the American economy, and the individual consumers, our purchasing power nationwide has been reduced. Every single American can buy less now than they could before with their disposable income. If those 10,000 jobs in the US steel industry were never created, and every consumer was able to keep their $2.86 cents per year, then again, those 10,000 jobs created in the steel industry previously would arise in other industries where our money otherwise would have been spent. Not only that, but steel prices would remain 511% lower, allowing many products made of steel to remain at a lower cost benefiting everyone. Overall, every American consumer benefits by allowing individuals and companies to purchase from the lower-cost supplier. Not only that, Americans can then focus our energy and resources more at what we are MORE efficient at producing, instead of trying to protect industries that are less efficient than others elsewhere.

In addition to this initial damage, there is in fact more damage from these actions. If we don’t spend US dollars in China, then they have no US dollars to spend on American exports. This will harm every US company that exports to China all to protect the one industry, US steel. These other, innocent, and efficient industries will suffer a loss of sales proportionate to their previous sales to individuals abroad. Thus, they will also cost American jobs.

To protect the one single Steel industry, and create those 10,000 jobs, on the net, has an overall NEGATIVE impact on the US economy as a whole. This is why tariffs are so damaging to nations, and why wanting “everything to be made in America”, is a wrongheaded way of thinking. We need to focus on being more efficient on what we’re good at instead. Deregulation and the removal of minimum wage laws are two large steps we can take to do so. This will not only reduce our product costs but also create deflation instead of inflation, allowing the cost of living for every American to decrease.

If YOU want to buy nothing but American made products, then absolutely NOTHING is stopping you from doing so.  You’ve always had that option, as has everything else. But you don’t have the right to FORCE others to do the same as you.

“The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.” – Henry Hazlitt, Economist, and author of Economics in One Lesson.

Shane Foster has worked his entire career in military law enforcement, corrections, fraud investigations, is an LSU graduate in Occupational Safety and Health, a Certified Counter Terrorism Specialist, and is currently about to graduate with a Bachelors degree with Management Information Systems from Columbia College, and obsessively studies economics via the Mises Institute.

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