Tariffs or Not for the US? Paper Example

Published: 2023-03-01
Tariffs or Not for the US? Paper Example
Type of paper:  Research paper
Categories:  United States Macroeconomics International business Strategic marketing
Pages: 7
Wordcount: 1796 words
15 min read
143 views

Classically, politics and the economy are closely interlinked that sometimes addressing the two separately is difficult. The intricate relationship implies that an error committed on either of them affects the other. In the global trade characterized by common markets, exploitation of comparative advantages in production by individual countries, liberalization of trade, and opening up of borders, poor political choices in terms of foreign policy on trade inevitably destabilize an economy. Apart from having largely adverse effects on the economy, the limiting policies in terms of tariffs undermine the reputation of the country and make it isolated in the context of the geopolitical economy. Based on this understanding, it is imperative that sovereign nations attain a proper balance of political decisions and economic policies as a self-protection mechanism. The US economy is regarded as one of the most stable, as reflected in the wide use of the US dollar as a common measure of value in the global market. However, from an economic perspective, this stability is not only supported by the intra-country trade but also its dominant role in the worldwide market. Intuitively, for any political strategy employed by the United States to be effective in protecting its economy, it should not deviate from the principles of free trade, partnerships, mutual respect, fair trade, and balance of trade with other global actors.

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Feasibility of a US Economic Policy that Includes Barriers to Trade

While imposing economic barriers may seem like the best economic preservation policy for the United States against a backdrop of fast-growing economies such as China, they may prove to be counterproductive if not well considered. traditionally, trade barriers have proven to contribute more economic harm than good in terms of raising commodity prices and reducing their availability, thus resulting in artificial scarcity. These effectively have trickle-down effects such as reduced incomes, increased unemployment, and lower output. Though the severity of these effects varies from one economy to the other, they are, for sure inevitable, especially in a world where economies are closely tied. evidently, world economies have displayed a departure from the previous protectionist trade policies since the end of the Second World War (Grundke & Moser, 2019). In turn, they have adopted a balanced, rules-based approach that is dominated by open trading. Conceivably, the elimination of such barriers has had a net effect of enhancing economic prosperity evidenced by rising in trade activity and its accompanying increase in output and incomes. The United States has substantially benefitted from the elimination of these barriers even though it still imposes duties on various categories of imports. currently, the overall rate of duties applied to certain imports on the US seems low, but t varies from one product to the next. The duties are levied on clothing, apparel, and footwear. Recent attempts by the government to impose new trade barriers threaten to cause a deceleration in US economic growth and its role in the World Trade Organization which is the largest organization for international market regulations.

Understandably, cross-border, and international trade is a cost-saving approach since it allows countries to specialize in the production of commodities for which they have a comparative advantage. erecting barriers through legislation would mean that the United States will have to produce goods expensively that it would otherwise import cheaply. The barriers would be cumulatively injuries to the US economy and its citizens. It is essential that the US economic advisors, congress, presidency, and economic advisors evaluate the fundamentals of international trade and the myriad ripple effects that barriers in any form have on the economy.

Trade Barriers and Their Implication for the United States

There are three forms of trade barriers that the United States employs. These include tariffs, non-tariffs, and quotas. The application of these barriers varies from commodity to commodity and specific country of origin. In some cases, the government affirms that such approaches are meant to attain a balance of trade, save employment, and protect local production against intrusion by external market players such as China. Conceptually, these approaches have proven largely counterproductive.

Tariffs

Tariffs are levied on imported goods and services. In most cases, the US government uses it as a means of raising the cost of commodities on consumers to make them match or be more than the price of locally produced products (Gandolfo, 2013). In a normative sense, tariffs are aimed at protecting the local industrial production, which lacks the internal capacities to compete favorably with foreign enterprises in a free market. Unwise tariffs may result in retaliatory tariffs from the country whose exports are targeted, thus undermining effective international trade. As a general trend, when tariffs are imposed on commodities, consumers end up paying a higher price than they would have paid. Such tariffs may provide only quick fix-short term protection of local industries, but their success depends on the response of the other country. shielding competition may cause an unusual rise in commodity prices and is a way of causing unfavorable terms of trade.

Higher consumer prices caused by the imposition of tariffs reduce the after-tax value of labor and capital income. imperatively, the hiked commodity prices that affect returns on labor and capital have the potential of incentivizing Americans towards reduced work and low investment (Gandolfo, 2013). These feedback effects would reinforce to cause lower output.

Non-Tariffs

Non-tariff is another trade barrier that the United States can explore, but it may cause adverse effects on its economy too. Non-tariffs are restrictions on trade without the direct levying of duties. some of these measures include quality controls, content regulation, and subsidies on imported commodities (Cadot, Malouche & Saez, 2012). The quality and content controls are intended to restrict imports since only commodities that meet the set standards are allowed into the US market. in cases of perceived unfair competition from foreign import markets, the government offers direct financial support to local firms in terms of subsidies (Panchenko & Reznikova, 2017). These subsidies help the local firms to meet part of the production costs thus making the commodities competitive. Giving incentives to protect market production limits cost savings and a variety of products in the market. This results in hidden costs borne by the government hence disadvantageous.

Quotas

An import quota is another element of the market barrier that the United States applies. It regulates the volume of commodity imports over a specific period. These quotas are intended to prevent market saturation by imported commodities (Cadot, Malouche & Saez, 2012). In the United States, there are three approaches for the establishment of quotas, including Executive Order, Presidential Proclamation, and Congressional legislation. sometimes the quotas are given in the Harmonized Tariff Schedule of the United States (HTSUS).

From a strategic business point of view, quotas are intended to reduce the number of rival products in the local market and increase demand for local commodities. execution of quotas is through government-issued licenses that limit the companies o the volume of imports they can make for a given commodity. In less technical terms, quotas increase the cost of importing goods or makes it difficult to import. such restrictive quotas are so elaborate the foreign companies or multinationals cannot circumvent them without being detected or sanctioned (Cadot, Malouche & Saez, 2012). In trying to limit competition, the principle of comparative advantage of countries and fair trade are undermined. Retaliatory sanctions may harm the US Markets.

Trade relationships between the US and other countries and the implication of imposing trade barriers

The United states-china trade war provides a typical case for how arbitrary market barriers have adverse effects on the economy of trading countries. For a long time, China and the United States have enjoyed seamless trade (Noland, 2018). This has been accentuated by the establishment of US companies in China due to various factors, including a low cost of production. Nonetheless, President Trump administration considers that there is an imbalance of trade between the two countries and try to level the trade through the use of tariffs (Siddiqua, 2019). The US imposition of tariffs on various commodities, including tires, has attracted retaliatory tariffs. The tariff war threatens to destroy the trading between the two countries (Noland, 2018). In 2019 President Trump imposed a new tariff of from 10% to 25% on Chinese exports to the United States, amounting to approximately $112 billion. The levy has resulted in high prices of affected commodities in the American markets including such sports equipment and furniture. As a response, China started adding 5% and 10% tariffs about $75 billion worth of U.S. exports to the country. The affect US exports include frozen sweet corn, pork liver, and bicycle tires. This shows that trade barriers do not create any winners. Both parties are bound to lose in one way or the other.

The US arbitrary trade barriers are likely to undermine the authority of the world trade organization and create rogue countries that do not adhere to the principles and practice of the global trading system (Bown, 2017). The tariffs and incessant trade wars between China and the united states, if left unresolved, will render the world trade organization as countries will retreat to the protectionist approaches resulting in a mega collapse of the rules-based international trading system advanced by the World Trade Organization (Bown, 2017). Preliminarily, the United States has exploited its stake in the world trade organization by refusing to replace members of the appellate body, by the decision to levy tariffs on aluminum and steel. it has also used section 301 to pass the first round of tariffs against China, which violates the WTO rules (Van den Bossche & Prevost, 2016). Eventually, the organization may be rendered useless. Effects of the US Trade Barriers on Its International Reputation

The United States' hidden protectionism policies, including non-tariff and tariff controls, have the potential of making the country appear non-compliant to the principles of free trade as espoused in the world trade agreements (Grundke & Moser, 2019). The decision by the President of the United States to impose tariffs on various imports and to pull out the United States from various trade agreements, including the Trans-Pacific Partnership (TPP), and renegotiation of the North American Free Trade Agreement (NAFTA). Tariffs imposed on products such as steel and aluminum amount to protectionism, which adversely affects the country's economy. Other regulations have resulted in less perceivable but obvious effects on the country's profile. By employing overt protectionism, the United states flaunting international trade rules. This in result, makes the country appear rogue and non-respecter of international regulations. Conceivably, this diminishes the country's global standing. Being a large economy that is taunted as a respecter of policies, any perceived rogue decision is likely to spur unrest in the geopolitical economy as other countries, too, are likely to revert to the same trade limitation tools.

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