Question

How do Tarrifs and Trade Wars shape our Economy? ( 3-4 paragraphs)

Answer 1

The trade war means that countries try to damage each other's trade by using imposition of high tariff or quota on their imports. The trade war always reduces international trade between the countries. As we know that the trade war generally starts when the nation tries to protect its industries and try to create more jobs in the economy. The higher tariff will give the domestic industries a competitive advantage against foreign counterparts. That means the price of domestically produced goods will decline as compared to foreign goods. As a result, the local firms can sell more products and their industry will grow and it creates more jobs in the economy. But it only benefited in the short run, in the long it harms the international trade and relationship between the countries. It decreases the economic growth of the economy who are all involved in the trade war. Also, it raises inflation in the domestic economy because of the price of imported commodity increases drastically.

The US-China trade war started on March 8, 2018, when president Donald Trump hiked the tariff rate of 25 per cent against steel products and 10 per cent against aluminium products. The after effect of a trade war between them is that the global stock market is showing a downward trend. Moreover, it affected with world’s largest economies like China, US and European Union. The tariff generally affects commodities like auto parts, processed food materials and construction materials. As a consequence, China also started imposing 25 per cent tariff on 545 categories of US products that directly imported from the United States. The major products are Soybeans, Beef, Whiskey, Vehicles and also coal and crude oil. It estimated around $50 billion. Trump’s next motive to impose more tariff on Chinese products and he claimed that China theft their intellectual property and unfair retaliation.

The primary consequences of a trade war are that countries are imposing the import tariff and are involved with tariff would losses their economic welfare and also experience collateral damage. The higher the tariff, it losses the total output in the economy and it would become permanent. The higher the prices that would destroy specialization in the new products and world productivity. When we are talking about the trade war between the US and China, it concluded that no winners in the war, when a country facing an import tariff will experience a decline in real export and GDP. The other trading partners also affected in the sense that weaker demand for their exported commodity. It generally happens through the supply chain or the more uncertain global demand for the product. Under the protectionist environment, the world trade suffers a lot; that is, multinational companies try hard to compete with the market. Both the US and China suffers from this trade war; there is a most significant decline in the import of goods and services. The significant impact on the war is that the real fixed investment is restrained that reflects the decline in export, the downward trend of equity prices and a drastic reduction in foreign domestic investment in these two countries.