Question

The U.S. has been in a trade war with China. Using reputable sources (cite them; web links are fine), find an example of either a Chinese good that the U.S. has levied a tariff on or a U.S. good that China has levied a tariff on. Summarize that particular case. After reading chapter 9, discuss the economic effects of that particular tariff in both countries. Who are the winners and losers in each country? Can you say whether either country gains or loses overall? Does your answer change if you consider that the other country can retaliate (or may have already retaliated) with further tariffs of its own? What policy remedies are called for?

Help Please

Answer 1

U.S has levied tariffs on Chinese steel and aluminium products, plus several other products. Thus the U.S administration imposed a 25% tariff on steel products imported from China and other countries. Later on some of the countries were exempted from the tariff.

Economic effect of this tariff on U.S were that treasury earnings increased because of the tariff, but it also led to inflation as steel imports turned out to be expensive and those producing finished goods and used steel as a raw material, faced severe high cost of production. It also led to less consumers demanding such products in light of increased prices and reduced trade. While Chinese factories faced lower demand conditions in light of the imposition of tariffs.

Thus the winner in U.S was the treasury which collected increased revenues from imported products, domestic steel producers also gained because of fair trading practices. But the losers were the local manufacturers such as General motors and other companies which required steel as a raw material.

While the losers in China were the local steel and aluminium manufacturers. Winners in China would be the local consumers who would have more cheap steel for them to use domestically.

Either country stands to loose overall because ultimately, trade activity declined and it led to reduction of jobs and demand in U.S as well as in China.

When China retaliated it further worsened terms of trade and made both the countries worse off overall and also impacted other countries in the global supply chain as the overall trade activity declined, which explains how several countries including U.S and China showed declining output and economic growth.

Policy remedies such as initiating talks and improving terms of trade, increasing global trade activity, because everyone gets to benefit from economies of scale. Removal of tariffs and reaching a common consensus could benefit global trade on a large scale, but it proves increasingly difficult in the current scenario created due to the pandemic.

References: Trump declares his trade war: targets steel, aluminum: Axios

Trump insists 'trade wars are good, and easy to win' after vowing new tariff: Washington post

Steel and Aluminum Tariffs: Chicago Booth

The Real Risks of Trump’s Steel and Aluminum Tariffs: New York Times.