WEEKLY UPDATES

Trade & Tariff Weekly Update From Lewis Leibowitz

The Real Costs of Higher Tariffs—by the Numbers

August 16, 2026

The Trump administration recently released “The Great Transshipment Scam,” a catalogue of grievances against importers seeking to evade tariffs.  But it fails to discuss a much larger economic effect, namely, the dramatic increase in the cost to customers of products, whether made here or overseas. 

When tariffs are imposed on imports, consumers will see higher prices for domestically produced goods or services that compete with those imports.  The 50 percent tariffs on imported steel and aluminum, for example, have led to price increases for domestic competing products of nearly 50 percent.  

This should come as no surprise.  Tariffs will increase the market-clearing price, and domestic prices will gravitate toward that new price.  

Where imports hold all or nearly all the market, the effect on domestic prices is less burdensome on domestic purchasers.  Imports of apparel, for example, have captured well over 90 percent of the US market. 

But for products like steel and aluminum, where imports have not captured the entire market, the effects are more dramatic.  Let’s suppose that steel imports have 20 percent of US steel consumption (this is about right).  Assume further that prices for domestic steel also rise by 50 percent (there is pretty good evidence of that too).  Imports of steel in 2026 will amount to roughly $60 billion, so the tariffs collected will amount to about $30 billion.  However, that is only 20 percent 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.  This is a shift of money from steel consumers to steel producers.  The government will not see any revenue from this.  The total cost of the tariffs will fall on steel consumers (and the economy) of $150 billion in 2026. 

Admittedly, these numbers are only approximations; but they can be used to compare the costs and benefits of these 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 a modest gain for domestic steel producers.  Only revenues have increased substantially.  

Revenues for steel companies increase, due to higher domestic prices.  Whether their profits also increase depends on market conditions.  Because steel producers in the US rely on imports for raw materials, such as pig iron, their input costs will go up. 

Interestingly, imports as a percentage of US consumption have not fallen much as a result of the doubling of steel tariffs.  The best information available from the U.S. International Trade Commission is that the increase of tariffs from 25 to 50 percent in 2025 resulted in steel import penetration decreasing five percentage points, from 23 percent to 18 percent.  

If the goal is to increase the number of jobs, that has not happened.  The number of steel workers employed since the doubling of tariffs is modest, by some estimates about 5 percent.  Using the $120 billion cost increase for consumers, that’s a cost per job of about $8 million—per year.  

Steel also argues that it is vital to national security and that without tariff protection steel might disappear from this country.  I don’t see much factual support for this assertion, and it’s harder to assess numerically the benefit of tariffs to national security.  I’ve reported before that the importance of steel production to national defense has been declining over several decades, as measured by the steel intensity of the US economy generally and the development of new weapons, such as drones and missiles, that use very little steel.  Across the board, weapons of war rely less on steel than they once did.  

So tariff increases from 25 to 50 percent have not made much of a dent in imports.  Mostly, that’s because the replaceable imports (those that compete directly with domestic production) have largely been washed out of the system.  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.  Tariffs on steel “derivative” products have not done much to change purchasing patterns by consuming industries, because the materials they need, like steel and aluminum, are not cheaper from domestic sources, as noted above. 

So imports, according to most analyses, are likely here to stay, at least in the absence 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 trying to evade tariffs that are largely a bad idea anyway.  

The tariff regime may finally have run its course, and will, if maintained, have more and more adverse effects on the American economy.  

Lewis Leibowitz

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