No nation on earth is self-sufficient by being in possession of everything its citizen’s demand calling for the need for international trade. Exports generate jobs and boost economic growth by giving domestic companies more experience to produce for foreign markets. Imports are beneficial since they lead to lowering of the cost of products to the consumer and provides the customer with a variety of items to choose. The US exports products to the EU and China and imports commodities from many states including the EU and China creating a global community that lead to peaceful co-existence as the citizens of these nations enjoy things from outside their countries. During the previous US governments, China, the EU and China had smooth trade relations with minimum tariffs which did not have a weighty impact on the economies of these countries until the current government was elected in 2016. Recently, the US government tried to protect her local industries by imposing taxes to steel, aluminium and solar panels with the aim of reducing imports to promote local production. The US government's move has received extreme opposition from EU and China who intend to retaliate, and the US seem unhappy with the reaction. The essay will expound on the effects of protecting local companies, retaliation on tariffs and the role of the World Trade Organisation.
Protectionism policy adopted by the US government aims at protecting the local industries from foreign competition in the effort to promote local industries. The strategy will prevent the EU and China from taking control of domestic firms in the US. in the attempt to achieve the objective, the US Government has imposed tariffs on steel and aluminium from EU nations and also solar panels from China. The imports duties are not fair since allied countries including Mexico and Canada are exempt from the tariffs. Lemieux observes that a state establishes a protection policy to prevent over the competition of foreigners to the local industries (2018). The EU and China promise to retaliate to this tariff and come with hard terms for the US-based products that their countries import from the US. Their decision is out of the high taxes that the US government is posing to their exports. The retaliation shows they were subjected to unfavourable conditions in which their exports would carry a charge which was not there previously, and this would affect their economy. Retaliating to the tariffs will help the nations in protecting their dignity and meeting the interest of the people globally. As a country imposes taxes, her terms of trade improve while those of the exporting nation deteriorates and this results to retaliation (Salvatore 2016).
The adoption of free trade between countries aims at fostering good relationships and improving the economy of the states. This trade entails practising international trade without restrictions from the importing nation, and it allows the customers to acquire high quality, cheap and a variety of products. The citizens from the various countries will improve the quality of their lives by getting a variety of goods from different states. There is more growth among the trading nations which result in efficiency and innovation. The US allowing her allies to import into the US at no tariff creates unfairness since it is a "selective policy." Free trade will enhance competitiveness which will help the countries to produce high-quality products to attract many consumers from all over the world. Dunn in his theory highlight that free trade brings mutual benefits and encourages a particular opening through the reduction of tariffs and other restrictions (2015). US should reconsider before adopting the taxes imposed on EU and China exports to the US. Free trade improves foreign relations, and a particular country is protected from international threats. This trade would ensure that there are improved security systems and this enhances development and the nations will get better ways of managing their economy (Helpman 2011).
Imposing tariffs is a way in which the US is protecting her local industries from the international competitors. These tariffs will raise the price of commodities produced locally or imported. Local products will cost more since local producers will not reduce their rates due to low foreign competition. The domestic consumers are left with few items to buy since many importers will disengage from the trade. The importers will shift the expense of the imports by raising the prices of their imports, and this would force them to give up on this trade. The US will earn revenue from imports from the EU and China, and these nations will shift the amount of the tariffs to the cost of their products and thus making them less attractive to the US consumers. In the figure below, the US aims to raise the value of a commodity and limit the amount of exported goods. The non-tariff price P* shifts to P1 and an increase in price will make the domestic producers produce more and the quantity produced will move from Qd
to Qw, and this leads to decreased imports, increased local production and a subsequent increase in the prices of the goods to the consumer (Labordew, Estrades and Bout 2013)
Figure 1: Impact of Tariffs on Imports
The EU has declared a trade war with the US for the taxes imposed on its aluminium and steel and this calls for the intervention of the World Trade Organisation. According to Acharya, this body was formed to provide for a platform in which member countries would engage in imports and exports and conduct their business peacefully (2016). Member countries of the World Trade Organisation (WTO) would benefit from its policy of lowering the trade-related barriers among themselves. The EU had halted on continuing with the move to retaliate to the US tariffs and waited for the WTO to have a say on the same. The countries which are not WTO members should negotiate related trade deals with their trading partners. The organization would help in implementing smooth operations and administration of trade between the US, EU and China to help them come into agreement on how they will carry out business. The established rules and regulations will be a guiding tool between these nations to settle the trading disputes that have already ensued. The organ is responsible for cooperating with the International Monetary Fund and the World Bank regarding the making of international economic policies. Prevalence of trade peace between these powerful states will occur from the guidelines of the WTO (Baldwin, Kawai " Wignaraja 2014).
The US has decided to put tariffs to her imports in what the president terms as giving back the glory to America. The implication is to protect her local industries who produce aluminium, steel and solar panels. Folly and Palmer observe that imposing the tariff would translate into increased prices of the import and the exporting nations would opt not to export to the importing country and subsequently lower the competition for the domestic companies (2010). These local companies will, however, produce more and increase the prices of their products (Carbaugh 2014). The US consumers will have a few goods to buy, and it would inhibit them from acquiring all that they may need. The retaliation from the EU and China is a counter attack to prevent the US from exporting to these states. Hard terms are imposed by both the EU and China in the struggle to cover the extra expenses on their exports to the US. Complicating the tax conditions would ensure that the importing country would give up on the trade due to over increased quotas on her products (Stewart 2010).
Tariffs are taxes which are imposed towards the exports or imports in the international trade. A state which imposes the duties towards the imports gains by adding to her revenue and protecting her domestic companies from foreign competitors. The consumers are left with few products to choose at a high cost. Free trade enables nations to trade in any country without any restrictions, and this allows consumers from various nations to have a variety of items. Competition is enhanced since each state wants a larger market share and remains at the competitive edge over other nations. More innovations are conducted on products to ensure the consumer gets a high-quality product. Countries grow as a result of free trade and their economies improve. There is the creation of mutual peace and understanding between nations, and this enables smooth operations of businesses among countries. WTO has played a middle ground in reducing trade-related issues and ensured disputes are solved to give a solution which will help the trading nations.
References
Acharya, R. 2016. Regional Trade Agreements and Multilateral Trading System. Cambridge University Press. P 19
Baldwin, R., Kawai, M., " Wignaraja, G. 2014. A World Trade Organisation for the 21st Century: The Asian Perspective. Cheltenham: Edward Elgar Pub, Ltd. P56
Carbaugh, R. 2014. International Economics. Cengage learning Inc. p 22
Dunn, B. 2015. Neither free trade nor protection: a critical political economy of trade theory and practice, p2
Folly, M., " Palmer, N. 2010. The A to Z of U.S Diplomacy from World War I through World War II. Lanham, MD: Scarecrow Press. P 137
Helpman, E. 2011. Understanding global trade. Cambridge, MA., Belknap Press of Harvard University Press. P 13
Laborde, D., Estrades, C., " Bout, A. 2013. A Global Assessment of the Economic Effects of Export Taxes. p23
Lemieux, P. 2018. What's wrong with protectionism? answering common objections to free trade, p 7
Salvatore, D. 2016. International economics. Hoboken, Wiley, p 214
Stewart, A, M.2010. Peterson’s Master the Ged. Arco Pub. P 299
