NATIONAL SECURITY OR PROTECTIONISM?: An Event Study Analysis of the Impact of Trump’s Steel and Aluminum Import Tariffs on U.S. Manufacturing Firms

Abstract

On March 1st, 2018, President Donald Trump announced forthcoming import tariffs on steel and aluminum products on the grounds of “national security”. These tariffs were met with backlash from a multitude of U.S. trading partners, resulting in an array of retaliatory tariffs applied to a wide variety of U.S. exports. In this paper, I use event study methodology to determine the winners and losers of Trump’s steel and aluminum import tariffs. By evaluating stock market returns of publicly-listed U.S. manufacturing firms, I investigate investors’ expectations of the consequences of Trump’s steel and aluminum tariffs, as well as the consequences of the subsequent retaliatory tariffs implemented by U.S. trading partners, on expected firm profits. I use industry characteristics to perform an industry-level analysis of the ‘abnormal’ returns experienced by the overall manufacturing sector. I find the import tariffs had a significant positive impact on the expected profits of steel and aluminum manufacturing industries. However, my results show that these tariffs, including the retaliatory tariffs, had significant impact (both negative and positive) on the expected profits of manufacturing firms beyond the steel and aluminum manufacturing industries. Notably, the firms / industries that are consumers of steel and aluminum products suffered significant expected profit losses as a result of the steel and aluminum import tariffs.