Why domestic tariff on steel increases the price of steel in the US and in the rest of the world?

Answer 1

Because a tariff is a cost for the importer (a sum of money it pays to the state for being allowed to enter the merchandise in the country), and it must be transfered to the consumer. Therefore the price goes up.

The prices in the rest of the world are influenced because the US is one of the big producers of steel and the relative ineficiency of its plants is materialized in high prices, which in turn influence the international market.

Interestingly, in many economic models, a tariff and a quota cause the exact same effect of decreasing supply (and thus decreasing quantity and raising the price). The only difference is that a quota has a larger deadweight loss than a tariff (because a tariff generates government revenues). So it is theoretically possible to structure a tariff to ensure that only a certain amount of a good is imported into a country, which is the goal of a quota. I describe this to lead to the overall point: tariffs cause prices to rise because they cause an artificial shortage in the market. It has very little to do with costs being transferred to the consumer. One could also suggest that tariffs protect less efficient producers (by imposing an extra cost on the more efficient out-of-state producers) and thus raise prices, but that effect would be much less pronounced.