Introduction
Ever since President Trump announced his plan to impose import tariffs on steel and aluminium imports, great divisions have been seen to occur among industrialists in the country. This is an issue of profound importance to me and my entire community due to the fact that its long-term impact will trickle down to the smallest unit of society. To understand the impact, it is first necessary to understand the meaning of protectionist policies and how they work from a theoretical point of view.
Protectionist Policies
In economics, protectionist policies are laws that are made in order to protect local companies from competition posed by companies in foreign countries. It is important to note that the president is introducing these laws since steel and aluminium from countries such as China are cheaper than in the US. This implies that US companies are facing stiff competition from these foreign companies hence the need to impose tariffs so as to increase the prices of these imports. Looking at the issue at face value, it is easy to assume that imposition of the tariffs will favor the American steel and aluminium industry. However, applying what is known as the theory of comparative advantage shows otherwise.
The Theory of Comparative Advantage
In the comparative advantage theory, the argument that trade is facilitated by there being different costs of producing different commodities in different countries is presented. In that regard, a country that produces one thing at the lowest possible cost is allowed to produce it while the other countries produce what they can produce at the lowest cost and then the different countries engage in trade so as to acquire the products that they do not produce. By the application of this theory, consumers everywhere will be able to access goods at the cheapest price possible, hence free trade in this context is actually a good thing. Trade tariffs, on the other hand, beat the logic of the comparative advantage theory in that particular goods from other countries are heavily taxed so that their prices in the market can increase, making locally produced goods more attractive to the consumer. This implies that the consumer will suffer since they will be paying a higher price than if the tariffs were never introduced. In that regard, it is evident that despite the fact that this is an international issue, it has the potential to cause an increase in the prices of products containing steel and aluminium at the local level.
Impact on Employment
In addition to these higher prices, people in my community risk facing increased unemployment in the long run due to the protectionist policies. At this point, it is important to be aware of the fact that countries whose trade with the US will be affected as a result of the policies imposed by the president have the potential to retaliate by imposing tariffs on products from the US. In that regard, China, for instance, might retaliate by placing hefty taxes against consumer products imported from the US or even increasing taxes on US companies operating in China. The impact, in this case, is almost obvious. These retaliatory moves will decrease the demand for American products in these markets, thus leading to lower revenues for the companies, which will consequently lead to cost-cutting measures including the laying off of employees. For that reason, I am expecting to see an increase in unemployment in my immediate community and a decline in average household income. The implication here is that the problem will transition from an economic issue to a social one that will have adverse impacts in all societies in the United States.
