US CREATED 209,000 JOBS IN JULY, VS 183,000 JOBS EXPECTED IN 2018 : AMAZING & DEEP ECONOMIC RESEARCH
Trump from US declares trade war on China: Beijing hit with $200 billion in tariffs that will go into effect almost immediately with the threat of more if Xi retaliates
- The president threatened to hit countries that ‘will not make fair deals with us’
- Said in response they would get ‘Tariffed!’ in a morning tweet
- Also stated the nation’s struggling steel industry was the ‘talk of the World’
Trump later announced $200 billion in new tariffs on China and threatened more if Beijing retaliates
President Donald Trump served up $200 billion in tariffs on imports from China on Monday that will go into effect almost immediately as he launched the latest volley in the escalating trade war between the two countries.
A White House statement said tariffs would start at 10 percent and go into effect in a week, on Sept. 24, before kicking into full gear at 25 percent at the start of the new calendar year.
‘Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports,’ a statement from Trump warned.
Trump threatened that nations that don’t make ‘fair’ deals withe U.S. with getting ‘Tariffed’ on Monday morning as he prepared to slap the trade rival with the expected $200 billion in penalties.
He held up China as a case in point after reaching a new trade deal with Mexico earlier this month, telling a roundtable on Monday that ‘China is now paying us billions of dollars, and we will see how that all works out.
”I have great respect for President Xi, as you know. I was over there for two days with him. I have a lot of respect for China,’ Trump said. ‘But last year, we lost $375 billion in deficits, and we had, in my opinion, way over $500 billion in cash. And that’s not including certain items that we won’t even talk about,’ he said, seemingly referring to alleged intellectual property violations.
He added,
‘So we’re not going to lose that. We can’t do that. We can’t do that anymore. It should have been done many years ago. It should have been done by other Presidents. And actually, it’s a disgrace that it wasn’t done.’
Trump said that ‘hopefully’ the two countries will ‘be able to work something out.’
‘We’ll be having an announcement tonight after market closing , and that will take place,’ he said, previewing the new tariffs. ‘I think it’s going to work out very well with China. I think they want to make a deal. They do want to make a deal — that I can tell you.
They want to make a deal.’ Trump also proclaimed the U.S. steel industry the ‘talk of the World.’ ‘Our Steel Industry is the talk of the World. It has been given new life, and is thriving. Billions of Dollars is being spent on new plants all around the country!’ he wrote.
The trade penalties are message to Canada, a country with which the U.S. is currently engaged in a trade stand-off, as well as Europe, a heavy bearer of the steep steel and aluminum tariffs that were introduced earlier in the year by the president.
‘Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into the Country – and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be ‘Tariffed!’ Trump on Monday morning tweeted.
This article talks about a recent imposition of tariff1 on China by US.
Since US had a current account deficit2, there was a pressing need for them to impose protectionist policies in order to maintain their balance of payments.
The current account includes net income, such as interest and dividends, and transfers, such as foreign aid.
“We lost $375 billion in deficits, and we had, in my opinion, way over $500 billion in cash. And that’s not including certain items that we won’t even talk about”3
Due to the imposition of tariffs on goods being imported from China into US.
“‘Tariffed’ on Monday morning as he prepared to slap the trade rival with the expected $200 billion in penalties”4
There will be an increase in the cost of imports and hence price from Pw to Pw+T, domestic supply increases from Q1 to Q2 while demand decreases from Q4 to Q3, which causes a shrink in the quantity of imports from Q1– Q4 to Q3 – Q2 which signifies the decrease in the imports and hence, the domestic producers will cater to higher demand, domestic production will increase from Q1 to Q2.
Initially the producers of China offered a lower price level Pw to the consumers, imposition of tariff might also boost government revenue which is represented by the shaded region in the graph i.e. quantity of imports times the amount of tariff imposed i.e. $200
“Served up $200 billion in tariffs on imports from China”
Imposition of tariff would have many advantages, the most important is that it reduces the current account deficit as it reduces the number of imports in the US.
“We lost $375 billion in deficits, and we had, in my opinion, way over $500 billion in cash.”5
This reduce in the volume of imports will further cause an increase in Aggregate Demand(AD) because as imports decrease, net exports (X-M) will increase, and the net exports are a component of AD, and hence there is an increase in the output of domestic producers.
Since tariffs are also a source of revenue they help in decreasing the government budget deficit. Moreover, the tariffs will help in protecting the infant industries in the US. As there is a growth in the domestic markets, there will be a decrease in Unemployment also.
“’Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into the Country – and yet cost increases”6
However, imposition of tariffs brings along few downsides too, which include retaliation or a trade war between US and China,
“He launched the latest volley in the escalating trade war between the two countries.”
It will also lead to higher price levels and retailers in US will suffer from loss margins. As consumers pay higher prices, there is a loss in consumer surplus.
1 A tariff is a tax imposed by a government on goods and services imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods and services.
2 The current account deficit is a measurement of a country’s trade where, the value of the goods and services it imports exceeds the value of the goods and services it exports.
3 Excerpt from the article above.
4 Excerpt from the article above.
5 Excerpt from the article above.
Tariffs lead to efficiency loss as domestic production increases and foreign production decreases as there will be a shift in US market from more efficient Chinese producer to less efficient domestic producers and hence this causes a fall in the world output. Tariffs have caused a decrease in the volume of imports, the consumer choices will decrease along with technological advancement of US.
Tariff would impact all the stakeholders in many ways, the Domestic producers will be benefited overall as initially their revenue was Q2✕Pw and the revenue area was ‘g+h’, while after the tariff, price increases, shown by a movement in the supply curve(domestic), their revenue increases to Q4✕Pw+T, and the revenue area expands to c+d+g+h+i, hence the producer surplus increases from ‘g’ to ‘c+g’.
Foreign producers suffer, as their revenue falls from ‘i+j+k’ just ‘j’.
Similarly, the Consumers are also affected negatively as they pay a higher price Pw+T as compared to the price before the tariff(Pw), representing a fall in quantity demanded from Q1 to Q3, however there is an increase in consumer expenditure from ‘g+h+i+j+k’ to ‘g+h+i+k+j+c+d’ the consumer surplus falls significantly from ‘a+b+c+d+e+f’ to ‘a+b+c’.
“U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into the Country – and yet cost increases”.
Government, by implementing the tariffs will gain and generate revenue, i.e. the vertical distance between the two world supply curves between Q3 and Q4, marked ‘e’.
Society- whenever there is government intervention, there is misallocation of resource, because of which there exists a deadweight loss represented by the area ‘d’ & ‘f’ and they are worse off.
In conclusion, it can be said that tariffs in the short run will reduce unemployment in US and will also cause a fall in current account deficit, however in the long run it causes retaliation (trade war), leads to efficiency loss and enforces negative impact on the consumers leading to less choices and higher price, and therefore tariff is not a feasible long run solution.
Bibliography-
- Francesca Chambers, White House Correspondent For Dailymail.com. “Trump Hits China with $200 Billion in Tarrifs and Threatens More.” Daily Mail Online, Associated Newspapers, 18 Sept. 2018, www.dailymail.co.uk/news/article-6178337/Trump-hits-China- 200-billion-tarrifs-threatens-Beijing-retaliates.html.
- Staff, Investopedia. “Tariff.” Investopedia, Investopedia, 18 Dec. 2017, www.investopedia.com/terms/t/tariff.asp.
- “Tariff.” Tarrif, pbmh.ac.in/tarrif.aspx.
- “Tarrif.” The Free Dictionary, Farlex, www.thefreedictionary.com/Tarrif.
- Tragakes, Ellie. Economics for the IB Diploma. Cambridge: Cambridge UP, 2012. 540-550 print.
