Question

Whether you realize it or not, increased tariffs and the potential for an all out trade war with China has a big impact on all of us. What are your thoughts on this issue? Keep in mind, this is macroeconomics not political science.

Answer 1

US and China trade deficit has increased to $ 485 billion which is mammoth and should be managed appropriately and timely. Further, US is losing lot of employment opportunities to overseas market. Thus, from prospective of growth rate and employments, tariffs would be helpful.

But imposition of tariffs will make US economy inflationary, Domestic consumers would be hard hit in form of increased prices. General welfare of people will fall as they would be penalised in form of increased prices of goods and services. It will render export relatively uncompetitive due to rise in inflation. Tariff has both advantages and disadvantages. Government needs to weigh upon pros and cons carefully.

Restriction on trade is not good from long run perspective, But china is using manipulative practices by keeping its currency artificially undervalued. China must follow true market tenets so that both trading countries might get benefits out of it. Thus, tariffs can be justified to some extent.