Global Markets Read: Chapter 3 Your author states that the \"The United States i

Question

Global Markets

Read: Chapter 3

Your author states that the "The United States is the largest importing and the third-largest exporting nation in the world, behind China and Germany." (Nickels, McHugh & Mchugh, 2019, p59)

Review: Trump's trade war with China just got a whole lot bigger

Link: https://www.cnn.com/2018/09/23/politics/trump-trade-war-china/index.html

The Trump administration imposed new 10% tariffs on $200 billion of Chinese goods just after midnight ET (noon in Beijing), spanning thousands of products, including food seasonings, baseball gloves, network routers, and industrial machinery parts. China retaliated immediately with new taxes of 5% to 10% on $60 billion of US goods such as meat, chemicals, clothes and auto parts. (Mullen, Lobosco, 2018, para 1)

Response: What is your opinion on this and how it will affect our ability to import/export (300-500 words)

Don't forget your reference (please, do not use my resource or the textbook)

Explanation / Answer

The Trump administration has imposed and threatened several rounds of tariffs in 2018, and other countries like China have responded to these measures. Using the Tax Foundation Taxes and Growth Model, we analyze the effects of enacted, threatened, and retaliatory tariffs on the United States economy. Tariffs damage economic well-being, and lead to a net loss in production and jobs, and lower levels of income.

According to the Tax Foundation model, the tariffs planned and enacted so far by the Trump administration would reduce long-run GDP by 0.12 percent ($30 billion) and wages by 0.08 percent and eliminate 94,303 full-time equivalent jobs. If the Trump administration acts on threats to place new tariffs on automobiles and parts and additional tariffs on products from China, GDP would fall by an additional 0.38 percent ($94 billion), resulting in 0.24 percent lower wages and 292,648 fewer full-time equivalent jobs.

If all tariffs announced thus far were fully enacted, U.S. GDP would fall by 0.59 percent ($148 billion) in the long run, effectively offsetting one-third of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.38 percent and employment would fall by 459,816.

Tariffs Raise Prices and Reduce Economic Growth

Economists generally agree that free trade increases the level of economic output and income, and conversely, that trade barriers reduce economic output and income. Historical evidence shows that tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.

Tariffs could reduce U.S. output through a few channels. One possibility is that a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labour and capital income. Because these higher prices would reduce the return to labour and capital, they would incentivize Americans to work and invest less, leading to lower output.

Alternatively, the U.S. dollar may appreciate in response to tariffs, offsetting the potential price increase on U.S. consumers. However, the more valuable dollar would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters. This would also result in lower U.S. output and incomes for both workers and owners of capital, reducing incentives for work and investment, and leading to a smaller economy.

Tariffs Enacted by The United States

The Trump administration has enacted tariffs on imported solar panels, washing machines, steel, aluminium, and various products imported from China. We estimate that these measures will amount to a total tax increase of nearly $42 billion.

In January 2018, President Trump approved tariffs on washing machines and solar panels. The first 1.2 million washing machine units imported will be subject to a 20 percent tariff, and all subsequent imports subject to a 50 percent tariff.[3] In 2017, the United States imported just over 2.7 million washing machines valued at $402 million; assuming these levels remain the same, the tariff would amount to a $0.15 billion tax increase.[4]

Steel and Aluminum

In March 2018, President Trump announced the administration would impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum.[5] If 2018 imports equal 2017 levels these tariffs could cost U.S. firms nearly $9 billion. For example, the value of imported steel totaled just over $29 billion in 2017. If the 25 percent tariff were levied on the same level of imported steel, the tax would total roughly $7.3 billion. Similarly, if a 10 percent tariff were applied to the $16.8 billion worth of aluminum imported in 2017, the tax would total nearly $1.7 billion.

In August of 2018, President Trump called for the tariffs applying to steel and aluminum imports from Turkey to be doubled to 50 percent and 20 percent, respectively.[6] In 2017, the United States imported $1.3 billion worth of steel and $0.1 billion worth of aluminum from Turkey;[7]doubling the tariffs amounts to a tax increase of roughly $0.335 billion on top of current tariffs.

Chinese Products

After tit-for-tat threats between China and the United States regarding tariffs and trade practices, President Trump settled on enacting a 25 percent tariff on $50 billion worth of Chinese imports. The first phase of the tariffs began July 6 on $34 billion worth of Chinese imports, and the remaining $16 billion went into effect August 23. These tariffs amount to a $12.5 billion tax increase.

The president has announced the administration plans to move forward with a 10 percent tariff on an additional $200 billion worth of goods from China. This amounts to a $20 billion tax increase.

Model Results

According to the Tax Foundation model, the tariffs enacted so far by the Trump administration would reduce long-run GDP by 0.12% ($30.4 billion) and wages by 0.08 percent and eliminate 94,303 full-time equivalent jobs.

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