‘Iowa-Grown’ Steel Under Threat by Tariffs
March 16, 2018
The recently imposed tariffs on imported steel and aluminum will almost surely help steelworkers in Detroit, at least in the short term. However, there are other, oft-forgotten “steelworkers” who will inevitably lose out. To explain what I mean by “oft-forgotten steelworkers” and why they’ll lose out, let’s dive into the story of the Iowa Car Crop, originally laid out by David Friedman and retold by Steven Landsburg in his book The Armchair Economist.
Almost everyone is vaguely familiar with how steelworkers in Detroit manufacture steel. In factories, they use smelters, and various other industrial machines. However, there is a second, rather counterintuitive way to make steel which very few people have considered.
Every year, farmers in Iowa (and elsewhere) plant, grow, and harvest their own version of the Iowa Car Crop. While there is nothing unique about the crop, farmers take their harvest and deliver it to a warehouse on the coast. Then a few weeks later, the crops disappear and in their place are cars. To the farmer and any other laypeople, the warehouses on the coast may as well be magic.
While the warehouse does indeed seem to convert grain into cars by magic, it actually does so by trade. Warehouse workers load grain on to boats, where they sail overseas and arrive back with cars from Japan, China, or wherever else. Regardless of the complicated supply chain which makes the Iowa Car Crop viable, the inner workings of the trade networks are only of concern to those who manage them. To everyone else, trade allows us to convert grain into cars, metals, and almost any other type of good conceivable.
The fact of the matter is that while tariffs may help Detroit-based steelworkers, they hurt the production of Iowa-grown steel. The resulting net loss in economic activity is the price all of us will have to pay.
When talking about trade, some economists prefer to throw around complicated sounding jargon like “comparative advantage,” or dive into wonkish graphs to explain the benefits of trade. A lot of that may be too arcane for most people. Friedman’s argument is, without a doubt, one of the simplest and most eloquent ways to outline the benefits of trade. With the “magic” of trade, it really is possible to turn crops into cars.