Importation and Exportation and Their Global Significance
Importation and exportation are a global necessity since there exists no nation on earth that is self-sufficient and creates a peaceful co-existence as the citizens of different nations enjoy things from outside their countries. Until Donald Trump was elected as president, China and EU had smooth trade relations with the US, with minimum tariffs, which did not have a weighty impact on the economies of these countries. Recently, the US government tried to protect her local industries by imposing duties to steel, aluminium and solar panels (Rushe, 2018). The government aims at reducing imports to enable the domestic industries to produce for the demands of the country. The US administration’s move has received unfavourable responses from EU and China who want to retaliate, and the US seems unhappy by the reaction. The essay will expound on the effects of protecting local companies, retaliation on tariffs and the role of the World Trade Organisation (WTO).
The Trade War Between US and China
The US president claims that over the last twenty-five years, China had dominated the US industry and a bilateral deficit between the two countries exist (Rushe, 2018). The meeting between Trump and China’s president Jinping ensued and ended up in an economic war. The US declared that the current annual of $370 bn bilateral trade deficit between the two countries need to be reduced through the move to export natural gas and agricultural products to China. From the current rate of tariffs, China proposed to lower her taxes from 9.8% to almost zero or zero per cent. The two countries planned on how to dominate the global advanced technology market through intellectual property protection by the US and the use of full resources of the Chinese state to support this strategy. The US views the outcome of the meeting as a way of dominating the American industry by the Chinese government and intends to pose a tariff of 25% on steel and 10% on aluminium imports from the EU states as well as 25% tariff of $50 bn of the imports from China. Taxes and fees help a nation to protect her local industries from foreign competition (Lemieux, 2018). The tariff move has caused a retaliatory force from China with an equal measure, and this makes the US harder by promising to impose more if the Chinese government goes ahead to retaliate. Salvatore (2016) stipulated that import fees improve the economy of the importing nation while deteriorating the economy of the exporting country.
Protectionism Policy and Technological Competition
The protectionism policy by the US to China targets to restrict the importation of products containing industrially significant technologies. It will enable her domestic companies to lead in the technological advancement across the world since China poses a stiff competition in technology to the US. A tariff of 25% on good worth $50 bn of China goods is imposed (Rushe, 2018). The American president said that the country had been losing intellectual property through unethical economic practices. The tariffs are imposed to target also the upgrading and the manufacturing sector in China, which poses a threat to the US industries. Dunn (2015) highlights that imposition of trade tariffs restricts the openings of development and creates trade enmity. China has counter-attacked the US move by imposing a tariff of an equal measure of 25% of $50bn of the US imports to China on agricultural and seafood and term the US behaviour as a narrow-minded decision and calls for other nations to resist the US move as it will cause trade chaos. President Donald Trump mentions that “steel is steel” and imposing a 25% tariff on steel and a 10% tariff on aluminium will affect the economy of the EU states and subsequently build a trade war. The EU states, however, have seen this decision of the US as an insult and opted to open a case with the WTO since the tariff is unjust.
Benefits of Free Trade and the Need for Fairness
The Chinese government term the move by the US as harmful to the foreign trade and calls for free trade by lowering her current tariffs from 9.8% to zero or something close to zero. 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. There is more growth among the trading states which result in efficiency and innovation. US allowing her allies to import into the US at no tariff creates unfairness since the EU, and China’s products are subjected to the duties. Free trade will enhance competitiveness which will help the countries to produce high-quality products to attract many consumers across the world. The US should reconsider before adopting the tariffs imposed on the EU and China exports to the States. Free trade improves foreign relations, and a particular country is protected from international threats. This policy 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).
The Effects of Tariffs on Local Companies and Imported Goods
Imposing tariffs is a way in which the US is protecting her local industries from the international competitors as well as returning the glory of America that had been destroyed by the previous leaders as Trump comments. The tariffs will raise the price of commodities produced either in the US or imported. Local products will cost more since local producers will not reduce their prices due to low foreign competition. The domestic consumers are left with few items to buy since China and EU states will cancel the agreement of trading discussed due to the high tariffs. 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 price of a commodity and limit the quantity of imported goods. The non-tariff price P* shifts to P1 and an increase in price will make the domestic producers produce more and the amount produced will move from Qd to Qw, which leads to decreased imports, increased local production and a subsequent increase in the prices of the goods to the consumer (Laborde, Estrades and Bouet, 2013).
The Role of the World Trade Organisation
The EU has declared a trade war against the US for the tariffs imposed on its aluminium and steel and files a case to the WTO. According to Acharya (2016), this body was formed to provide for a platform in which member countries would engage in imports and exports and conduct their business peacefully. The organ is responsible for cooperating with the International Monetary Fund and the World Bank regarding the making of global economic policies. Prevalence of peace between these powerful states will occur from the guidelines of the WTO (Baldwin, Kawai and Wignaraja, 2014). The organization would help in implementing, administration and smooth operations 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 Consequences of Tariffs and the Dangers of Unfair Trade
The US government has proposed imposition of a tariff to imports from EU and China, which had brought a retaliatory move by the Chinese government and a case filed to the WTO by the EU (Rankin, 2018). The US insists on adding more tariffs to China due to their trial on retaliating. Folly and Palmer (2010) observe that imposing the tax would translate into increased prices of the imports and lower the competition for the domestic companies. The local companies in the nation imposing the duty will produce more at a higher price shifted to the buyer (Carbaugh, 2014). The US would face retaliation of the same measure from China, which would cause invalidation of the agreement reached earlier by these nations. According to Kaprov and Kaprov (2010), a trade agreement is destroyed when one of the involved parties want to benefit at the expense of the others.
Conclusion
In conclusion, tariffs are taxes imposed towards the imports in the international trade. A nation which imposes the duties towards the imports gains by adding to her revenue and protecting the domestic companies from foreign competitors. 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. More innovations are conducted on products to ensure that the consumer gets a high-quality product. Nations grow as a result of free trade and their economies improve. The WTO plays a middle ground in reducing trade-related issues and ensuring disputes are solved to give a solution which will help the trading states.
Figure 1: Impact of Tariffs on Imports
References
Acharya, R. 2016. Regional trade agreements and multilateral trading system. Cambridge, UK: Cambridge University Press.
Baldwin, R., Kawai, M., and Wignaraja, G. 2014. A World Trade Organisation for the 21st century: The Asian perspective. Cheltenham, UK: Edward Elgar.
Carbaugh, R. 2014. International economics. New York, NY: Cengage Learning Inc.
Dunn, B. 2015. Neither free trade nor protection: a critical political economy of trade theory and practice. Cheltenham, UK: Edward Elgar.
Folly, M. and Palmer, N. 2010. The A to Z of U.S diplomacy from World War I through World War II. Lanham, MD: Scarecrow Press.
Helpman, E. 2011. Understanding global trade. Cambridge, MA: Belknap Press of Harvard University Press.
Kaprov, R., and Kaprov, S., 2010. Peterson’s master the ged. Arco Pub.
Laborde, D., Estrades, C., and Bouet, A. 2013. A global assessment of the economic effects of export taxes. Washington, DC: IFPRI.
Lemieux, P., 2018. What's wrong with protectionism? Answering common objections to free trade. [Online] Available at: https://www.heritage.org/trade/event/whats-wrong-protectionism-answering-common-objections-free-trade. [Accessed Dec. 5, 2018].
Rankin, J., 2018. EU opens WTO Case against Trump’s steel and aluminium tariffs. [Online] Available at: https://www.theguardian.com/business/2018/jun/01/eu-starts-retaliation-against-donald-trumps-steel-and-aluminium-tariffs. [Accessed Dec. 5, 2018].
Rushe, D., 2018. China retaliates against trump’s $50bn in tariffs, escalating possibility of trade war. [Online] Available at: https://www.theguardian.com/us-news/2018/jun/15/trump-50bn-china-tariffs[Accessed Dec. 5, 2018].
Rushe, D., 2018. Donald Trump signs orders or metals tariff plan, prompting fears of trade wars. [Online] Available at: https://www.theguardian.com/us-news/2018/mar/08/donald-trump-metal-tariffs-trade-war. [Accessed Dec. 5, 2018].
Salvatore, D. 2016. International economics. Hoboken, NJ: Wiley.
