Tariffs: Taxes, Protectionism, and Globalization - Essay Sample

Introduction

Tariffs denote a specific tax levied on imported goods at the border. Tariffs were used historically as a means to obtain revenue for the government but they are also used to protect the domestic industry as well as their production. In theory, the increase in imported goods prices, it is assumed that Americans would choose to buy American goods instead. This is because the modern globalized economy has seen the movement of goods from country to country, or if goods are assembled in other countries or if goods were manufactured entirely. In the past, the U.S. tariffs have a bad reputation considering the Smoot-Hawley Tariff of 1930 which worsened the Great Depression (Morris, 2018). This tariff was levied on farm products and manufactured goods which made other countries impose a tax on American goods leading to a global economy standstill. Since then, most countries have embraced free-market trade policies and turned away against trade barriers. During the great depression, from 1929 to 1934, the global economy decreased by about 66% mainly driven by the imposing of tariffs (Morris, 2018).

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

US Tariff on China

U.S. and China are the largest economies in the World. Currently, the two are locked on a bitter trade dispute which has seen the two countries impose tariffs worth hundreds of billions worth on each other (UNCTAD, 2019). These disputes are driven by President Trump's claim that China trading practices are unfair as well as accusations on intellectual property theft. Conversely, China has a speculating perception that the U.S. is trying to curb its rise as a global economic power. The tariffs imposed by President Trump are mainly aimed at encouraging U.S. citizens at buying American made products by raising the prices of imported goods.

In 2018, the U.S. administration started effecting tariff which specifically targeted Chinese imports such as steel, washing machines, aluminum, and solar panels. The first face of the U.S. Chinese trade war was in the early summer of 2018 where each of the sides raised tariffs worth about US$50 billion on the imports from each side (UNCTAD, 2019). The U.S. and China have found it impossible to settle at a common ground in order to settle their dispute as well as resolve trade issues and intellectual property rights. These have conversely resulted in the decline of the trade relationship between the U.S. and China. In September 2018, the U.S. introduced additional tariffs on the Chinese U.S. $200 billion imports while China conversely responded by imposing U.S. $60 billion additional tariffs on U.S. exports to China (UNCTAD, 2019). These parties came to a truce in December 2018 where both parties agreed on retaliatory actions until March 2019. In June 2019, the U.S. increased tariffs on Chinese imports from 10% to 25% while the Chinese responded by also raising tariffs on U.S. goods which were already subjected to tariffs (UNCTAD, 2019). In September 2019, the U.S. additionally went ahead and imposed a 15% tariff on the remaining imports from China worth U.S. $300 billion. This series of events and retaliatory actions have been labeled the U.S.-China trade war.

Apart from the imposition of tariffs, this section also accesses the impact of tariffs imposes on Chinese imports by the U.S. investigating also the impact of tariff changes on international trade. This is possible because the tariffs were imposed in different phases targeting a specific country.

According to the UNCTAD (2019) research paper analysis, it is established that the tariffs imposed by the U.S. against China have resulted in the reduction of imports affected by the additional rise in tariffs by more than 25 percent in 2019. The results have also shown that China's losses have dramatically increased compared to their counterparts, the United States. Conversely, research indicates that some Chinese exporters are bearing part of the tariff cost leading to low export prices. The analysis also established that the export of losses to the U.S. by China has partially caused trade diversion effects. The tariffs mostly affected office machinery and communication equipment at the sectoral level.

Conventionally, the trade war between the U.S. and China has significantly affected the global trade keeping in mind that these are the largest economies in the world. Based on conventional trade models, we understand that raising tariffs conversely results in the reduction of demand for imports. The U.S.- China trade war where tariffs are applied to a single country can lead to trade diversion effects where the goods are imported from elsewhere. In theory, trade diversion does not happen fully or are not complete because third party countries only capture part of the trade while most of it is lost or the country imposing the tariff may internalize the trade.

Figure SEQ Figure \* ARABIC 1: Percentage change in the value of United States imports from China (UNCTAD, 2019)

According to Figure 1, exports from China to the U.S started declining after the imposition of tariffs. Figure 1 also indicates that products not subjected to tariffs maintained their stability and increased in the same year. The increase may be due to stockpiling due to the possibility of additional tariffs on the remaining products. Conversely, the increase in exports may also be as a result of the Chinese trying to increase their profit margins through the export of non-tariffed products. The change may also be a result of mis-invoicing products in order to avoid tariffs.

It is also evident that consumer prices are affected. The tariffs also lower export prices in the process. In general, the imposition of tariffs affects both consumer prices and export prices. Research on the U.S. - China trade war has found that the tariffs have largely affected consumer prices while Chinese export prices indicating little change (UNCTAD, 2019). The studies also established that tariffs imposed by the U.S. had a full pass-through to the United States consumer prices. Tariff pass-through may be complete but incomplete over time due to reasons such as stickiness of import prices as a result of long contractual terms, in other situations exporters counteract the effects of the tariffs by lowering their prices in order to preserve their market share. Market preservation is an ideal strategic option that perceives in trade costs temporarily as well as protect against foreign competition in the existing markets.

As outlined earlier, trade diversion effects are one of the consequences brought about by the U.S. - China trade war. This paragraph analyzes the country that has best tried to replace China and by how much. In 2018, the U.S. recorded the U.S. $130 billion of imports while the first of 2019 recorder U.S.$ 95billion which was a decline of US$35 billion (UNCTAD, 2019). Conversely, out of the US$35 billion declines, only US$21 billion was recorded from other countries in 2019 which means that about 63 percent of the products that declined were outsourced from other countries while the remainder US$14 billion was lost. However, despite the tariffs, China has preserved 75 percent of its markets affected by tariffs. According to records, Mexico increased its exports to the U.S. as a result of the U.S. - China trade war tallied to be about US$ 3.5 billion; products from Mexico included transport equipment, electric machinery, and agri-food products. The European Union also benefited from the trade diversion effects accounting to about US$ 2.6 billion with their goods mainly concentrated on furniture and communication equipment. Other countries that benefited include the Republic of Korea, India, and Canada an increase ranging from US$ 0.9 to 1.5 billion (UNCTAD, 2019). Conversely, South East Asian countries also benefited from the remainder of the trade diversion effects which accounted for about US$ 1.7 billion.

US tariff on Bangladesh

In 2018, Bangladesh had a population of 165 million and an estimated GDP of $287.6 billion (Anwar, 2019). Conversely, Bangladesh is ranked the 51st largest product trading partner with an estimated $ 8.2 billion in total goods of trade in 2018. The country additionally exported goods worth $2.1 billion while imports totaled $6.1 billion. In 2018, Bangladesh goods trade with the U.S. tallied to a total of $4.0 billion. The Department of Commerce established that Bangladesh exports to the U.S supported an estimate of 6, 000 jobs.

According to Anwar (2019), Bangladesh was ranked the 63rd largest exporter of goods in the U.S. in 2018. Bangladesh exports to the U.S. amounted to $2.1 billion which is a 41.2% increase from 2017. The main exports from Bangladesh include miscellaneous grain, fruits, seeds, aircraft, cotton, steel, and iron. Conversely, the U.S exported goods worth $1.1 billion in 2018 to Bangladesh.

Contrariwise, the highest tariffs are not imposed on China; rather they are against China's poor Asian neighbors such as Bangladesh and Vietnam who export large volumes of clothing and shoes. The products are disproportionately subjected to high rates of tariffs. These countries face high rates of tariffs because of their substantial trade in clothing and footwear. These facts are aired by the fact that the US imports more than 97% of its clothing (Anwar, 2019). Although goods the US import in large volumes are subjected to low tariffs, clothing such as sweaters is an exceptional product generating more income revenue than any other product except personal cars. Additionally, nearly all imports from Bangladesh are subject to US duty with tariffs rates of 15.2% of the countries shipment to the US; which accounts for the highest average rates among the 232 countries in the ITC database (Bangladesh faces the stiffest tariff in the US, 2018). For instance, in 2017 Bangladesh exports goods worth %5.7 billion; 95 percent of the items included clothes, shoes, and headgear.

The classical high tariffs may be a reason for outdated protectionism. This is explained by the fact that although the US textile industry has crumbled to its past glory, the reaming small manufacturers still exert influence politically through political representatives who in turn fight for them in trade deals.

The U.S. - China trade war has additionally benefited Bangladesh. This is because China and the US are stable trading partners of Bangladesh with their significant volume and value of trade. As a result of the U.S. - China trade war, Bangladesh exports are expected to increase by $ 400 million with Bangladesh's garment industry benefiting by almost 80% of its total exports (Anwar, 2019). In theory, American retailers are set to place more orders from Bangladesh in order to offset the increasing tariffs in China. It was also established that the Bangladesh market share grew by 6.46 percent in 2018. Additionally, it was also established that as the garments industry in China declined, the new hot-spot would be Bangladesh with its market value expected to triple by 2020 (Anwar, 2019). Being the 51st largest trading partner with the U.S., Bangladesh enjoys a $4 billion surplus such as the imposition of soya beans which market declined in China after the imposition of tax. Bangladesh may also benefit as the U.S. aims to ease up tariffs from other countries in order to minimize the gap created by the trade war with China. In conclusion, the trade war between China and the U.S. opened a new window for Bangladesh.

US Tariff on Canada

Besides China, President Donald Trump has engaged in various trading conflicts with other countries such as Canada and Mexico. In 2018, President Trump subjected a 25% tariff on Canadian steel exports and a 10% tariff on aluminum exports (DicksonWright, 2018). The Canadian government conversely retal...