Will more expensive metals impede economic growth in the US?
As the US government justifies new tariffs on steel and aluminum imports with their military importance, the role of metals in society comes into focus. New research shows that metals are an important ingredient in economic upswings. Conversely, metal use declines rapidly in recessions. Restricting the access to metals or increasing their price may come at a cost to the economy.
Metals are key enablers of economic development and human progress, being widely used for their superior structural properties, durability, and increasingly for their special chemical properties that are the basis for technological wizardry from drones to brain imaging. Access to metals is important for a modern economy. Taxing an important input to production may cause disruption in global supply chains. New research published in Nature Geoscience by a team of scientists from Yale, Tsinghua University, and NTNU tried to unravel the relationship between metal use and economic activity.
This research addresses the metal footprint, which is a way to combine the consumption of different metals to a single indicator. It represents the ore that needs to be extracted to satisfy the consumption in a country, even if the metal is actually employed in another country, as in the factory producing your laptop. The metal footprint reflects the effort in the extraction of the ore and represents the associated environmental costs. Since 1970, global metal ore extraction increased more than threefold, to 1.2 tons per person in 2013. More than half of the metal footprint was caused by the large emerging economies: Brazil, Russia, India, China and South Africa (BRICS). The most significant growth was associated with iron ore, which expanded especially after the year 2000. To understand this growth of metal use, one needs to understand what metals are used for. In 2013, two thirds of metal use was associated with investments, up from half two decades earlier.
These macro-level descriptions, while interesting, tell us little about causality. That is why we conducted a panel analysis of metal footprint of 43 large economies looking at the time span of 1995 to 2013, for which good data was available. We find that metal footprints are more strongly dependent on economic growth than any other resource or environmental indicator previously investigated. Increasing economic growth by 1% increased the metal footprint by 1.9%.
We then went on to unpack this elastic, aggregated metal footprint-economy relationship. We tested the metal footprint effects of other factors, such as the degree of urbanization, the share of industry in value added, the share of investment in GDP, population density, or domestic ore extraction reflecting the availability of metals. Only investment proved to be important, and very important at that! We found that at the same level of economic growth, a 1 percent higher share of investment in GDP would increase the metal footprint of a country by 2 percent. With investment included, the sensitivity of metal use to economic growth became less, indistinguishable from a 1:1 relationship.
We conclude that metal use is tightly coupled to economic development and to investment in particular. The finding raises questions about the impact of the Trump tariff on steel and aluminum. What will the impact of higher prices and reduced access be on the American economy? There are many ways by which a reduced access to metals can constrain economic growth. Many investment goods – cars, machinery, and buildings – are made from metals. As metals become more expensive, products made domestically from metals become more expensive and import of those products becomes more attractive. Increasing investment costs may reduce the level of investment and hence the capacity to produce goods in the future. The largest impact, however, will be in the construction sector, where shifting to imports is not really an alternative and higher costs are most acutely felt.
See also: Coverage on phys.org.
I am professor of industrial ecology at the Norwegian University of Science and Technology.
May 12, 2018
