The start of 2018 saw a significant change in the structure of multilateral trading, mostly due to the United States' actions unilaterally increasing the import tariffs on some of its trading partners. These changes mainly affected China, aiming to reduce the trade deficit between the United States and China. By the year 2017, it was estimated that the United States' trade deficit with its trading partner China was at a record of over 363 billion dollars (Comtrade, 2018). It has been noted that this bilateral trade deficit is 42% percent of the 861 billion dollars total deficit of the United States.
The Trump administration prioritized creating policies that would reduce this bilateral trade deficit with China. The administration attributed the deficit to protectionist practices by the government of China. Research by Liang and Ding (2020) suggests that A 24% import tariff on steel imports and a 7.7% on aluminum imports was imposed as the first significant policy to reduce the deficit. Their economic analysis of these tariffs and trade policies' effect shows that the importation of products affected by the tariffs has decreased by 30%. It is essential to study the benefits and costs that these policies have in the American economy both in the short and long run.
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In the short term, the United States has seen an increase in steel, aluminum, and electronic products. This increase has also had a spillover effect in other sectors of the economy. The United States also experienced an increase in its exports of these products, an important trade policy goal. However, most of the gains were only felt in the short since China neutralized most of the gains achieved by the United States government. Emerging and developing countries that were not affected by the tariffs saw an increase in aluminum and steel production.
Marcus Noland (2018) notes that gains that have resulted from the tariff policies are not equally shared among the American population. He notes that skilled classes have benefited more while unskilled workers have experienced no change in their wages and even a decrease in wages in some cases. Additionally, Norland notes that the protectionist policies have not seen a rapid increase in employment as they intended to achieve. This factor is mainly because the manufacturing sector's unemployment is primarily caused by technology changes rather than globalization.
Noland argues that the results of these tariffs on the American public and the retaliation from its trading partners will negatively affect employment and income. The imposition of taxes on imported products indirectly levies the American people an additional 80 billion dollars since it's the country's citizens imposing tariffs that pay the taxes. In the long term, economists predict these tariff policies will cause a reduction in GDP and wages. It is estimated that the guidelines will cause a loss of 180,000 jobs in terms of employment, creating an opposite effect than they were intended.
According to Noland (2018), the gains made on exports of products will not be sustained in the long term since the tariffs may cause the dollar to appreciate. This increase in the dollar value will make it harder for exports from the United States to be sold in the international market. Revenues from exports will consequently decrease negatively affecting income. All these costs will reduce the incentives to work and invest in the country, creating lower output.
Another effect will be on American companies, which will experience reduced international competitiveness, as Noland noted. As companies from other countries continue to thrive in the low-cost input environment of globalization, American companies will find it harder to compete with these companies, given the high-cost production nature they will experience in the United States. Retaliation activities from trading partners may see American multinationals exit their foreign branches, further causing job loss and reducing income to workers and owners. The costly production and operation environment that the tariffs will create will cause a decrease investment in the United States by foreign multinationals.
The 15% increase in tariff imposed on textile and apparel from China has impacted my employer, a store specializing in men's fashion in the United States. The business was first hit by a shock, given the first few weeks of uncertainty that normally accompany tariffs. The next few weeks, the employer took measures to help the business sustain the tariff waves that threatened its survival, which solely relied on imports from China and other Asian countries. First of all, he took measures to cut costs in other areas of the business. Efforts to reduce utility costs on electricity, internet, and telephone were put in place. Secondly, the employer decided to increase the prices of commodities so the consumer can foot some of the tariffs levied upon the goods. A 7% increase was put in each product's price from the countries affected by the policies.
The third measure was to seek to import similar products from other countries not affected by the tariff policies. Countries such as China, Malaysia, Indonesia, Vietnam, and Brazil, which have a vibrant textile industry, produced similar goods and were not affected by the tariffs. The employer has made contacts with manufacturers in these countries to seek alternative importers for long term sustainability.
In this era of increased globalization, trade tariffs to balance out trade deficit often turn out to be counterproductive. The citizens of the country imposing the taxes are the ones who bear the burden. Retaliatory measures and a more costly production environment further hurt businesses and multinational companies. The desired effect of increased jobs is often not achieved or achieves negligible results.
References
Comtrade. 2018. United Nations Commodity Trade Statistics Database Statistics Division. Available online: http://comtrade.un.org (accessed on 15 June 2018).
Liang, G., & Ding, H. (2020). Trade wars. The China-US Trade War, 6-24. doi:10.4324/9780429345241-2
Noland, M. (2018). US trade policy in the Trump administration. Asian Economic Policy Review, 13 (2), 262-278. doi:10.1111/aepr.12226
