Question

In: Economics

browse the media for a current article related to economics concepts then do the following A...

browse the media for a current article related to economics concepts then do the following

A clear and concise sentence stating the question at issue;

A brief summary of the author’s position. Don’t summarize the entire article. Present only a direct, clear and concise statement of the author’s position on the issue being discussed;

Your assessment of the quality of supporting evidence presented by the author;

A description of key assumptions made by the author to arrive at his/her conclusions;

Your own perspectives on the issue and its impacts on individuals, societies, and/or countries, hopefully taking into account some economics principles

Solutions

Expert Solution

For our study, let us take an article from Bloomberg which talks about the present scenario of tariff imposition on various products by the US government, adhering to its protectionist trade policies.

The issue in question is the effects of curbing liberal trade among nations with an aim to promote local industries and whether this would result in boosting economic growth by encouraging higher contribution by local producers towards GDP and reducing the negative trade balance as a result of reduced imports.

The authors' position on the issue is against the imposition of protectionist trade policies as the authors believe that curbing liberal trade would harm the US economy as the importers would take a hit and increased tariffs would lead to a corresponing increase in the price levels. Adding to that the authors also point out that this would lead to job cuts, slowdown of economic growth as production is affected due to rise in input costs. The authors also hint at a possibility of an impending economic collapse by suggesting comparisons with 'The Great Depression of 1930'.

Assesment:-- As the popular saying goes,'There are two sides to a story.' This present scenario could be analysed from the authors perspective on the one side and the government's plan on the other. While the article seems to heavily criticize the move by drawing comparisons with the greatest economic disaster (The Great Depression'), the government seems to be sticking to its original plan of reducing the trade deficit and encouraging local producers by means of protectionist policies. The authors criticism is backed by gains from trade theory, which suggests that all nations would be mutually benefitted by engaging in trade with each other as it would lead to specialization and comparitive advantage. Although this is not mentioned specifically, the authors line of thought reflects this. The article also hints at impending job cuts, economic slowdown, price rise and a shock in the economy.

Key assumptions made by the author: A violent shaking up of trade system by means of tariffs to curtail imports and curb trade by one nation would lead to a chain reaction of similar policies imposed againt that nation by other countries to counter the move. This would lead to the country in question having to react against the other nations for a situation triggered by it. This would have a severe impact on a global scale.

Perspective:

The authors perspectives could be analysed by taking some economic principles into consideration.

Let us say, the tariffs lead to a tit- for- tat measures taken by other nations. This would mean US export markets would be equally affected due to reduced demand for US products. The immediate effect of the tariff would be a rise in prices. For the industries, it would mean increased input costs leading to job cuts. The job cuts would lead to less consumer spending and slowdown the economy. The major impact of this would be a shifting of inputs towards other varied sectors instead of focussing in the areas best suited for the country (i.e) a shift in the allocation of resources.

Comparitive advantage would be reduced as a result of lack of specialization as the country would have to focus on supplying all key sectors with the output of local firms, which will likely come at a higher price than cheaper imported goods. These are some of the negative effects on the economy which would take place going by the economic principles.

But, the government increase in spending and tax cuts, which would be its plan to offset the economic slowdown and price rise by increasing consumer confidence levels and encourage investment and thereby boost economic growth. The government is possibly considering to cut imports to sort out its trade deficit. Since, its key exports are machinery, aircraft, computers, and products of high technical know-how, other nations imposing a tariff on simple products may not affect the US economy significantly. The federal reserve bank has planned to increase government spending and tax cuts and has projected a 3% growth in the economy following the move. It also has planned to increase interest rates so as to offset inflation.

These measures will have an impact on the economy both domestic and international. Whether the US benefits from it or whether it succumbs to global pressures and internal economic instability, only time will tell. As always it is the invisible hand guiding the economy, the government measures can play only a small part. Eventually, the market forces will adjust themselves and reveal the efficient or the damaging nature of the policies.

Link to the article(https://www.bloomberg.com/view/articles/2018-03-02/trump-s-trade-tariffs-are-far-scarier-than-george-bush-s)


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