Question

Some politicians, labor unions, and special interest groups argue that US trade deficits are harmful to the economy and nations that run large trade surpluses with the US are benefiting from unfair trade practices and agreements. These parties support increasing tariffs on imports, elimination, or re-writing of trade agreements.

Respond to the following in a minimum of 175 words:

• Discuss what credible economists say about the effects that tariffs, changing trade agreements, and/or manipulating exchange rates will have on the total US trade balance.
• Do you agree with their assertions? Why or why not?

Answer 1

Tariffs affects the U.S. trade balances in such a way that it rises the prices and comparatively reduces the available quantity of goods and services for the consumers as well as the businesses of the country. As a result of this, lower income, lower economic output and lower employment takes place in the country. Further it affects the GDP of the nation, wages and employment in long run. The economists have a view point that tariffs have truly a negative impact on the trade balances of the country and major changes in tariffs of the nation will keep on affecting the trade balances for the same in long run as well, which is true. It directly affects the international trade of the country.

The trade agreements, i.e., regional and bilateral have much of a positive effect on US. Trade balances on an average. The trade agreements with the other countries increases trade surplus and reduces the trade deficits of the nation. Economists think that the trade agreements can have a negative impact too on the trade balance. As per the on going trade war between US. and China has resulted major effects of it on other countries as well, but on a larger part of the context is in short run it has a positive effect which are healthy trade practices between the nations.

The changing exchange rates of the country results in changing supply and demand affecting the currency. U.S. has a high demand for its goods which tends to export more than imports of the goods, which result in increasing demand of its currency in the global market. The changing exchange rates will considerably affect the trade balance of U.S. as the changing demand and supply of goods affects the exports and imports of the country which ultimately affects balance of trade of the nation.