Trade War in the US Essay Example

The trade war in the US started when President Trump introduced tariffs that affected its trade partners. The duties were imposed on various goods ranging from chicken to steel incubators. The move resulted in retaliatory tariffs from Mexico, Canada, European Union as well as China. During president Trump's reign, the US has used taxes as the primary weapon in the trade war (Bryan, Gal, & Cheng, 2018). The tariffs mainly target the goods flowing into the US; these duties are collected at the good's port of entry. Once the taxes are imposed, they directly affect the importers.

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Recently, the tariffs have been imposed on a wide variety of goods, and this move is likely to make an impact on the US economy. The step started in February 2018 when the government introduced tariffs on solar energy equipment and washing machines. One month later, the government announced the introduction of the 10% tariff on imported aluminum and 25% on imported steel (Bryan, Gal, & Cheng, 2018). This move caused a push-back from the nation's allies because the tariffs were applied on national security grounds, for instance, countries like Mexico and Canada claim that they pose no national security risk; hence they should not be slapped with tariffs. Nonetheless, the two countries alongside China and the European Union have been forced to file a suit with the World Trade Organization arguing that the US tariffs are illegal.

About tariffs, China is the biggest target, with about 11% of the goods traded between the two countries prone to duties (Bryan, Gal, & Cheng, 2018). The US government has threatened to impose additional tariffs on Chinese goods as a result of their retaliation. China has termed the US tariffs as one of the most massive trade war in economic history. Additionally, the trade war with Canada is the second largest with about 4.5% of total trade prone to new tariffs; this resulted in the Canadian prime minister arguing that the duties were 'insulting' (Bryan, Gal, & Cheng, 2018).

On the other hand the only about 1.5% of the trade goods between the EU and the US, and 1.1% of assets between Mexico and the US are prone to the newly introduced tariffs (Bryan, Gal, & Cheng, 2018). Nevertheless, the amount of trade open to duties would increase drastically for the EU, Mexico, and Canada if the US government extends its tariffs on the import of auto parts and cars.

Nevertheless, the retaliatory tariffs from the US trade partners predominately target the US agricultural products as well as consumer products like kitchen equipment and nail polish. However, it appears that the selection of farm products is not random. Further, according to most analysts, much of the effect will be felt in areas that Trump won in the last US presidential election. Taking into consideration that the new tariffs were introduced in 2018, the retaliatory tariffs will increase political pressure on Trump, especially in the next few months. Currently, most polls indicate that a majority of Americans do not support the duties and the Republicans have attacked the decision by the president continuously. Hence, in the next six months, more pressure will pile up on Trump.

At any given time, an increase in tariffs is often accompanied by inflated prices, for instance, the costs of aluminum and steel have increased since the imposition of duties. The US oiled steel piece increased by about 36% between January and July; this trend is expected to continue in the next months. Eventually, this will cause the price of goods made from metal to increase in the future. Today, homebuilders report increased prices for metal goods. Same case for washing machines where prices have soared due to tariffs imposed in February.

The companies using American-made metals are going o suffer in the future, for instance, an interview conducted on Middleby Residential; this is a California-based company, argued that the recent pressure due to the introduction of tariffs had driven the cost of steel by almost $350 per grill (Benning, 2018). Taxes on specific products results in domestic producers of those products, increasing their prices while still trying to maintain a competitive advantage. Similarly, the local suppliers are forced to raise the prices of commodities.

It takes time for consumers to experience the effects of tariffs due to some factors like product inventories, supply chains and bureaucratic hoops (Benning, 2018). Companies are forced to notify customers about the future increase of prices. More so, companies' old stock is not immediately affected by changes in policies. However, given a period of like six months, most companies will have exhausted the old stock; thus new prices reflect the effects of tariffs on raw materials. In the future, the price increases are going to affect other steel-heavy appliances like oven ranges and refrigerators. Besides, the future duties pledged by Trump are going to change a wide range of products in the US economy. Therefore, in the next six months, one can anticipate a general increase in prices unless the president can accomplish his promise to secure better trade deals.

According to Brown (2018), the tariffs on the US economy have focused on intermediate goods. This causes concern for the US businesses that use raw materials from overseas to create finished products. This has resulted in increased costs for manufacturers as well as the pressure to cut down costs in other areas or raising prices. The most likely outcome is the laying off at these organizations or increased prices for consumers, for instance, the scenario of Moog Music. The company was forced to raise its prices in response to the tariffs. The company was forced to inform its consumers that it had three options, i.e., laying off employees, to move production out of the US or to increase commodity prices. This situation is likely to replicate in the next six months.

The backlash has already started affecting the US, and this will continue in the future. The agricultural and fishing sectors have begun to complain about the economic consequence (Brown, 2018). The US exports a lot of soybeans to China. However, due to the retaliatory tariffs from China, the US prices have fallen, putting more pressure on the American farmers. This has forced the government to promise new subsidies, for instance in September, the US Department of Agriculture paid out grants to some farmers. Hence, this appears as unnecessary government spending due to the effect of new tariffs. One would expect unnecessary government spending in various sectors of the economy in the future.

Lachman (2018) argues that Trump's administration is leading the US to a scenario of a full-scale trade war with China. Some individuals say that the trade war with China will not affect the US economy. However, they fail to consider the indirect channels by which the trade war can impact the US economy.

One can project that in the next six months into the future, the rising trade tensions in the US will have a damaging impact on global and United States investor confidence. This will affect the global supply chains as a result of trade barriers. This can be anticipated in the future because the trade war is not only about China but also includes Mexico, Canada, and Europe in general. Additionally, the other effect would be on the global financial markets; this will be affected by lower equity prices and higher interest rates due to risky loans. Research in the past has revealed that an increase in trade war has resulted in a steady decline in the US and global equity prices (Pisani, 2018).

The new tariffs are meant to slow down the Chinese economy, and this will have an effect on the global trade in the future. China is the second largest economy, and this makes it an essential part of economic growth in emerging economies (Eckart, 2016). Nonetheless, China's economy has a significant impact on international commodity prices. Therefore, any effect on China's economy will affect the latter economies which account for more than half of the global economy. It is argued that Trump administration can find an alternative to reduce the trade war with China to save real damage on US and global economies, but with the US having the upper hand in the trade war, the trend is likely to continue in the future.

The scholars of international political economy argue that trade has never favored poor Americans. Therefore, the new tariffs would worsen the situation in the future. The total employment in the manufacturing sector has fallen by approximately 25% since 2001; this translates to about 4.5 million workers. Individuals argue that free trade was the primary source of the decline. However, this does not make the new tariffs as the ultimate solution. Instead, the situation is likely to worsen. As discussed earlier taxes will raise the price for consumers, even the aim is to protect the domestic companies.

Today, Trump's tariffs are beyond the steel and aluminum in that they cover primary products like shoes and apparel. In the US economy, food and clothing constitute the largest share of household expenditures. Also, a majority of these products are imported. Foreign producers dominate the US market, for instance, 80% of Walmart suppliers are from foreign countries. Therefore, an increase in household expenditure is likely to increase the cost of living in the future.

Conclusion

Trade wars appear as one of the significant concerns in Trump's presidential reign. This has resulted in the introduction of new tariffs on goods from the US biggest trade partners like the European Union, China, Mexico, and Canada. The imposition of the new duties seems to be fulfilling the political promises but leaving the economy in chaos. One of the primary responses from the US trade partners is the retaliation tariff; this has caused sufferings to thousands of farmers, consumers, workers, and companies. Besides, none of the new taxes introduced in 2018 have been lifted. Nevertheless, the US Courts have failed to take action on the new trade policy. Therefore, the collateral damage is likely to increase in the next six months casting more doubt on the long-term purpose behind the introduction of the new tariffs.

References

Benning, T. (2018, July 17). Why Trump's tariffs tack an extra $350 onto the price of this high-end outdoor grill. Retrieved from The Dallas Morning News: https://www.dallasnews.com/business/trade/2018/07/17/trumps-tariffs-will-skewer-grilling-gurus-extra-350-luxury-model

Brown, C. P. (2018, September 17). For Trump, it was a summer of tariffs and more tariffs. Here's where things stand. Retrieved from Peterson Institute for International Economics: https://piie.com/commentary/op-eds/trump-it-was-summer-tariffs-and-more-tariffs-heres-where-things-stand

Bryan, B., Gal, S., & Cheng, J. (2018, July 28). Trump's trade war is getting serious- here's why it started, what it means for the US economy, and how it could hit you. Retrieved from Business Insider: https://www.businessinsider.com/trump-trade-war-tariffs-effect-on-economy-prices-consumer-stocks-2018-7?IR=T

Donnelly, G. (2018, March 2). Here's what you need to know about Trump's trade war. Retrieved from Fortune: http://fortune.com/2018/03/02/trump-trade-war-tariff-smoot-hawley/

Eckart, J. (2016, 23 June). 8 things you need to know about China's economy. Retrieved from World Economic Forum: https://www.weforum.org/agenda/2016/06/8-facts-about-chinas-economy/

Kucik, J. (2018, August 3). How Trump's trade war affects working-class Americans. Retrieved from The Conversation: https://theconversation.com/how-trumps-trade-war-affects-working-class-americans-100702

Lachman, D. (2018, June 27). A trade war would affect our economy. Retrieved from American Enterprise Institute:...