Question

Based solely on the already realized outcomes of the current “Trade War” with China and other trade partners (but NOT your individual political views), do you think the U.S. has been served well by the various tariff and non-tariff barriers that have been enacted? In other words, have the recent actions undertaken served to benefit the U.S.’ position in global trade, hurt that position, or have they had no real impact on observable metrics?

Answer 1

Tariffs are used to increase the prices of imported goods in order to motivate consumers to buy 'relatively' cheaper domestic goods. High tariffs have the effect of hurting global value chains leading to decreased profitability for international firms. For example, Tesla had urged the US government to exempt China-made parts used in its vehicles from tariff hike, fearing loss of profitability. The ongoing trade war between the US and its partners, China in particular, has increased unpredictability relating to trade and has the potential to impact businesses around the world. Because of heavy investments in China, any decision to raise tariffs will directly impact businesses having linkages in China. Retaliation on part of the US's trade partners also affects probable exports of American goods to these countries, thus disrupting the smooth flow of trade. The US's trade deficit with EU and China widened in 2018.

The import content of exports of US was 9% in 2016. This figure indicates the level of integration of the US economy with the rest of the world. The US has basically recorded trade deficit since the late 90s , indicating the extent to which the economy is relying on imported goods for domestic production. Thus, the recent tariff hikes have the potential to impact the economy in a major way.

  Given the fact that the US's trade deficit has continued to widen with major groups like EU and China, further tariff hikes can be expected in the short-run for controlling the growing imbalance in trade. However, the impact of such measures is likely to be seen in the long run as businesses that struggle to cope with the changing scenario will find it hard to remain in competition. Thus, even as these actions seem to have altered the US's standing in global trade only minimally right now, continuing with the present strategy would bring big changes in the US's trade relations with its partners in the long run.