Question

President Trump via twitter on 11/29/2018: “Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go. If companies don’t want to pay Tariffs, build in the U.S.A. Otherwise, lets just make our Country richer than ever before!”

Comment on whether the terms-of-trade argument against free trade necessarily applies under the presence of retaliatory tariffs applied by trade partners;

Answer 1

In order to reduce the imports of cheap China made goods to US, Trump has announced imposition of high tariffs on goods imported from China. This has been undertaken in order to make US self dependent and encourage the US companies to manufacture within the country. He has clearly mentioned that if the countries do not want to pay high tariffs on the goods imported from China, they should manufacture within the country. Imported price have been increased compared to export prices in order to encourage exports and reduce imports.

China has responded to it stating that it would impose retaliatory tariffs on broad range of US products imported in China. This retailiatory tariff is being imposed as a measure to fight against the high tariffs imposed by US on the goods imported from China. Thus retaliatory tariff is applied by trade partners to combat against the rising export prices compared to import prices. As the prices of goods exported from China to US increases, retaliatory tariff is being imposed so as to rise the prices of goods imported to China from US.