Question

What lessons can we take from the failed Embargo Act as the threat of a trade war looms near?

Answer 1

Case Specifics:-

The United States and the Asian countries of China and to some extend India, stand at the brink of trade war which may happen in the future as a result of the restrictive trade measures taken by the Trump Administration on imports which rise from goods produced in China and India respectively.

The resultant could be a situation in which a failure like the Embargo Act, which was passed in 1807 by the United States, primarily to harm Great Britain and France in the Napoleonic Wars turned out to be a problem for the country and its economics respectively.

In the era which followed the implementation of the Embargo Act, the United States discouraged imports from the countries as listed above, and all ports were sealed and these countries were not permitted to sell their products in the United States.

A similar policy today, is looking to be adopted by the Trump Administration which seeks to protect the manufacturing sector within the country by having restrictive trade practices with India and China.

However, this policy would most likely result in more problems for the United States than not. Discouraging cheaper imports into the country would result in consumers having lesser access to products which were previously easily available. China and India are two countries wherein population is extremely high, and the overall cost of production tends to be extremely low.

As a result of this, local manufacturers can increase the prices of the alternatives being sold and this would result in inflation to occur in the economy.

Further, since the United States produces goods at an expensive rate, compared to the countries as explained, exports would also see a hit and the country could experience extreme trade cycles as during the Embargo Act.

Thus, advocates for free trade tell us, that the country should increase its competitiveness against the countries it wants to fight with, than apply no trading mechanisms which would dent the country as a whole.

Please feel free to ask your doubts in the comments section if any.