Introduction
Trade war is all about attack of one country over another with the help of quotas and taxes. Donald Trump has reckon trade wars, focusing it as an easy approach, which has shaken the global trade foundations (Rossi, D., Angelini, P., Metra, C., Campardo, G. and Vanalli, G., 2008). President Trump has slapped steep tariffs on goods from EU, Mexico, Canada and China. The tariff on billions of dollars goods coming from abroad is considered an easy approach for Trump, as he imposed 10% levy on £150bn products from China (Loriaux, S., 2018).The$100bn gain from tariff is intended to put in the agricultural sector to buy products, that will in turn sent to deserving countries under humanitarian assistance. Currently, US has a massive trade deficit for China, in 2019, it approached to $43.6 billion to $419.2 billion.
Literature Review
President Trump has obsession with trade deficit, not popular yet and critics mentioning this move of Trump administration as protectionism. US economy mainly gain net income from services.Trade protectionism is a restriction on global products such as tariffs to boost the products of own country by shielding the industry from intense global competition (Rossi, D., Angelini, P., Metra, C., Campardo, G. and Vanalli, G., 2008). For instance, Trump has aluminum and steel tariffs. In 2018, he announced 10% tariff on aluminum products and 25% on steel imports. According to the administration, the economy of US relies on other countries regarding metals, and in case of a war, the country could not make adequate weapons. US acquires most of its steel and metal products from EU and Canada. Taxing aluminum and steel means US companies will fulfill their demand from local industry. This notion provides that in this way, US aluminum and steel industries will boost up, since less goods will be coming from abroad that will increase revenue for local steel makes and prices increase (Loriaux, S., 2018).
The trade protectionism by Trump administration will not only increase the price of local finished product but also it will be dissatisfaction or consumers.China has retaliated this and taxed US industrial and agricultural productssuch as cotton, pork, steel pipes and cars. It is discussed that these are necessary countermeasuresagainst Trump’s tariffs. Donald Trump says, trade wars are easy and not bad when it is the matter of trade balance. International monetary fund expressed that the situation is scary, as the American trade policy is aligned on economic nationalism (Wu, W.-C., 2018). The extent of productive distribution of assets declined and longer term costs are acquired. This system by and large will in general diminish government assistance, so a checking impact over item assortment is watched.
New York Times reported that protectionist intensions can bring some warnings. The frivolousmanner of US trade is striking and increasing the complexity in the region. Intermediate goods are most significant part of the modern global economy (Rossi, D., Angelini, P., Metra, C., Campardo, G. and Vanalli, G., 2008). A tariff on steel can be helpful for producers but for the larger interest, consumers will hurt and that will impact the automotiveindustry. AFL-CIO is the main union association of US that has more than ten million members, such as steel workers. The body has shown its favor for protectionist policy by Trump. Patil, A., (2017) said that it will be helpful to increase the employment level in industry which would be protected by tariffs, yet it can be harmful for other sectors’ employment. Over the most recent two decades, the pattern about advancement has been expanded, yet money related emergency are intensified. The training details with respect to protectionism is found in type of complexities. US approaches in regards to protectionism is confronting serious outcomes, i.e., with China and different districts.
Tariff can boost the capital intensive sectors and can offer fewer jobs. According to Uygur, E., (2018) the reduction in imports will not increase the jobs but it will provide jobs to that particular country, which is ready to replace imports belong to china, previously. USA is helping out World Trade Organization to focus on trade disputes that has prompted a trade war. Any breach of rules that work on international trade rules is carried out by reprisals from affected countries. The trade protectionism has been causing a divergence of American relations with Canada, European Union and China. German Economic Analysis Institute has discussed that EU has exported €856bn in 2016 and paid 0.7% as tariffs, on average. USA exported €645bn to Europe paying 0.74% tariff. This situation provides that it is not possible to continue business with EU, as according to Donald Trump (Rossi, D., Angelini, P., Metra, C., Campardo, G. and Vanalli, G., 2008).
The trade war can increase the uncertainty of investment and investor’s perception. This impact of tariff can have limited impact, for instance, Citi data discussed if an increase of 25% is implemented on imports of car, the inflation will be 0.1%. This will escalate tensions and the uncertainty factors will also limit the positivity of Stock Exchange. It is also acting as a main volatility factor on stock exchange today in US. The intentions of Trump are departed from the broader US consensus that support open trade policy and it also limit the concept of immigration (Rossi, D., Angelini, P., Metra, C., Campardo, G. and Vanalli, G., 2008). The situation can bring distress of white voter and economic anxiety. The country level electoral data of US highlights that trade protectionism has gained negative views from the global world. The expanded protectionism isn’t huge for the market, since it offers ascend to twists. The since quite a while ago run costs increments because of this training and local enterprises face bail outs. The job of household creation is frustrated because of protectionism, and it has been seen by numerous investigations that in short-run, local creation limits are impeded.
Protectionist policy of US president is apparently a good suit for citizens. Research from University of Geneva presents that this policy of Trump has effects for unemployment and OECD countries’ welfare. Being negative in nature, such policies will also impact employment in US and Mexico. US Trump administration is openly implementing this concept on trade and economists considered it as a stark policy reversal. Unemployment level clearly demonstrates about economic health, so that protectionism can affect the employment rate. The study discussed that North American Free Trade Agreement was conducted by Trump by imposing 20% tariff on bilateral level in Mexico and US. This has reduced the average level of welfare in US by 0.31% and 6.6% in Mexico (Uygur, E., 2018).
The trade protectionism is also expected to increase the rate of unemployment to 48% in Mexico and 2.4% in US. The researchers revealed that this impact on economic policy is significantly related to the automotive industry. If US has increased the tariff on cars against import from other countries, it will decrease long term employment and welfare in all the respective car producing countries. The protectionism do not apparently show negative aspects and a president can only be satisfied from the result, during his power.
Rossi, D., Angelini, P., Metra, C., Campardo, G. and Vanalli, G., (2008) provided that trade protectionism is controversial debate, when viewed in terms of economic welfare. It has numerous economic impacts. Consumer limit their choices but they have to pay more. The quotas restrict the amount of consumption. The choice of consumers, in terms of quantity, quality and product choices decreased. The protectionist policies intend to provide jobs and safeguard industries but they decrease the consumer welfare by providing them less availability of desired goods and services. In addition, consumers set to low or poor quality goods. Patil, A., (2017) illustrated that paying high for limited goods can bring inflation in the economy. The limited choice of consumers will set them for low quality so they will either purchase low quantity or will not purchase at all.
Trade protectionism is also affecting domestic firms, when they have to purchase parts of products but pay tariff, so they pass this additional cost to consumers. Nortasnom, A., (2019) mentioned this provides an increase in global competition by keeping the welfare of consumers low. Another effect of protectionism is declined growth of infant industry because there are many trade protection policies by government. The protection to the infant industry causes cost to government in the form of financial resources. This will promote the inefficiency in infant industry because when no longer incentives are provided to make it intelligence and smart, the industry will not mature (Loriaux, S., 2018). The protectionism will hinder the maturity and decline the capability of infant industry to be competitive in long term.
The trade protectionism causes nation to keep its value of currency low, so the deceased value will cause long term inflation. This issue is related to sell the products at international market in cheap prices. Necessities will be sold in high prices, so the consumers will have a good intention to help industry stay competitive at global level but they have to pay high prices at home. It is also a cause of trade wars among nations. If a country focuses on trade protection, a reciprocal action will be taken by others, for example, in case of US and China. No matter, if both countries are military and political allies, the nation will impose, quotas tariffs and controls over exchange rate. The case of Japan and US shows that they are long term allies but after the World War II, the administrative policies of trade and tariffs are invoked against one another (Jean, S. and Reshef , A., 2017).
According to the economic freedom index of 2008, US is ranked as fifth freest global economy. The index dimension highlights the trade that is free from the interference of government. In that index, US was considered as the leader of free trade. Multilateral trade under thegeneral agreement on tariffs and trade (GATT)was flourished that provided political stability in all partners. The method of trade protectionism came at front after the presidential elections and Trump administration took the charge. The GATT agreement was aligned in effect of trade protectionism to set quota ceiling about foreign products to limit supply and to increase the imported products price. The protectionism was considered to place hurdles for imported products under certain specifications and standards. Currency control was limited to manipulate the exchange rate and to access global currencies, in order to inflate the price of global products while reduce the domestic product’s prices(Jean, S. and Reshef , A., 2017).
Houngbedji, H., (2018) presented the protection policies was intended to maintain or increase the share of market and help domestic industry. Through this concept, counties restrict imports to own market. The protectionism supports argue that free trade is harmful for the local industry andnegatively effects balance of payment. The domestic demands are met by imports, so unemployment level increased andproduction level decreases (Gagnon, F., 2020). The metaphor of trade protectionism is opposite to the liberal trade practice. Free trade policies focus on liberalization practices in less developed countries regarding elimination of imports restriction, smooth functioning, and privatizationof state owned firms and exchange rate deterioration. Basically, protectionism roots are related to mercantilism because there are trends that support this concept.
From the survival of US since 1929 crisis, it has empowered its governmentto reduce the rate of tariffthrough law of bilateral trade. The newly emerged protectionistpoliciessince 1973dominated the scope, in order to protect the infant industry and reduce foreign competition. New protectionism focused on the protection of consumers, the sustainability of environment and public health provision.With the WTO formation, tariff reductions was actualized for the agricultural products. These measures were adopted as invisible measures (Demir, M.A. and Sepli, A., 2017). The supporters of protectionism claim that liberal trade disrupts terms of trade of developing countries. The terms of trade will be negative over time, if demand for exported agricultural goods is less than the industrial goods.
According to the protectionist, the domestic industries preservation against foreign competition is a contribution to protect unemployment. The imports restriction revives domestic product’s demand so it substitutes foreign goods. Increase in demand enhances domestic level of production. It will need more labor to produce, so reduction in unemployment (Daniels, J.P. and Vanhoose, D.D., 2017). The protectionist contend that national economy should be protected from dumping. It is a state of sales under the price of cost. The companies sell productsunder their original value so that they can reach market and compete with rivals. The situation gives rise to unfair competition in the economy and it needs anti-dumping tax to differentiate applied price and fair price.
The NAFTA trade agreement held an objective as a reduction of tariff in the good trade (Dadush , U., 2019). The agreement, for the larger part of the goods decided that final preferential tariff rate will be adequate for the period of ten years. USA levied low rate of tariff on Mexico and Canada at average. WTO member countries and gross household’s wage and income incur losses from non-tariff and tariff barriers. In Canada and Mexico, proportionate decline has been observed by studies. The retaliativemeasures regarding trade policy are seen by WTO members against US. Ciuriak, D., (2019) focused that it is also attributable to the domestic economies and strong dependency ratio on them. The individual countries are able to decline their loss due to some measures related to increase in tariff, however the single country cannot be able to compensate the incurred real income wages of household. The exchange protectionism by Trump organization won’t just increment the cost of neighborhood completed item yet additionally it will be disappointment or buyers. China has fought back this and saddled US modern and horticultural items, for example, cotton, pork, steel funnels and vehicles. It is talked about that these are vital countermeasures against Trump’s taxes.
The US protectionist trade policies are not significant for US to get benefit or to provide benefit to the rest of world. The consequences about NAFTA withdrawal is carried out by different members, such as US, Mexico and Canada. Bakhshi, S. and Kerr, W.A., (2008) argued that this has a significant impact on macro-economic variables because US protectionist policies are not in the favor of WTO because they come in combination with the retaliative response. The trend of protection has a moderate impact on the flow of trade so counties are restoring the measures related to protectionism. In the last two decades, the trend about liberalization has been increased, yet financial crisis are worsened. The practice technicalities regarding protectionism is seen in form of complexities. US policies regarding protectionism is facing severe consequences, i.e., with China and other counties. The exchange protectionism makes country keep its estimation of cash low, so the expired worth will cause long haul expansion. This issue is identified with sell the items at universal market in modest costs. Necessities will be sold in significant expenses, so the purchasers will have an honest goal to assist industry with remaining serious at worldwide level however they need to address significant expenses at home. It is additionally a reason for exchange wars among countries.
Chatterjee, D.K., (2011) discussed the increased protectionism is not significant for the market, since it gives rise to distortions. The long run costs increases due to this practice and domestic industries face bail outs. The role of domestic production is hindered due to protectionism, and it has been witnessed by many studies that in short-run, domestic production capacities are obstructed. The scope of efficient allocation of resources declined and longer term costs are incurred. This framework overall tends to reduce welfare, so a curbing effect over product variety is observed.The aims of Trump are left from the more extensive US accord that help open exchange arrangement and it likewise limit the idea of migration. The circumstance can bring pain of white voter and financial uneasiness. The nation level discretionary information of US features that exchange protectionism has increased negative perspectives from the worldwide world.
Conclusion
The discussion about the effect of protectionism related to trade by Trump administration revealed the reduced level of welfare for domestic industry. It is also argued by differentscholars that impact of these policies for international trade is hurtful. The effect of trade related agreements is significant to consider in this situation, however the impact is without bilateral trade. The overall discussion has concluded that impact of trade protectionism is significant on liberalization practices, so trade policy worse off infant industry, increases level of prices, thereby reduces welfare of domestic production. The risk of protectionism in near future can also bring distortion in trade related practices. The impact of increase in trade protectionism canbe negative for competition at global level. This indicates that countries will lose the benefits from trade and any related initiatives. The expected loss for implementing countries would be larger, if viewed in terms of specialized sectors. The different simulation model can be assessed in caseof multi country vision. US isimplementing such practices and lowering the overall welfare of domestic economy as well as consumers. This risk is associated with the financial crisis and a sluggish global recovery cannot be neglected.
References
Bakhshi, S. and Kerr, W.A., 2008. Incorporating labour standards in trade agreements: protectionist ploy or legitimate trade policy issue? International Journal of Trade and Global Markets, 1(4), p.373.
Chatterjee, D.K., 2011. Protectionist Policies. Encyclopedia of Global Justice, pp.912–912.
Ciuriak, D., 2019. How U.S. Trade Policy Has Changed Under President Donald Trump – Perceptions From Canada. SSRN Electronic Journal.
Dadush , U., 2019. Washington Slept Here: How Trump Caught Politicians Napping on Trade. Trade and American Leadership, pp.142–166.
Daniels, J.P. and Vanhoose, D.D., 2017. Regulating international trade—trade policies and their effects. Global Economic Issues and Policies, pp.101–137.
Demir, M.A. and Sepli, A., 2017. The Effects Of Protectionist Policies On International Trade. PEOPLE: International Journal of Social Sciences, 3(2), pp.136–158.
Gagnon, F., 2020. Breakpoint in Time: Donald Trump’s Trade Policy Toward Canada. Alliances and Power Politics in the Trump Era, pp.239–254.
Houngbedji, H., 2018. Protectionist Trade Policies and Agricultural Productivity in WAEMU Countries. Review of Economics and Development Studies, 4(1), pp.1–9.
Jean, S. and Reshef , A., 2017. US protectionism would raise trade costs worldwide. Emerald Expert Briefings.
Loriaux, S., 2018. Fairness in Trade and Protectionist Policies: some Reflections. ArchivfuerRechts- und Sozialphilosphie, 104(3), pp.346–361.
Nortasnom, A., 2019. Power and Wealth in the Trump Administration and Beyond. Trade and American Leadership, pp.425–446.
Patil, A., 2017. Reviving Indian IT Sector Amid Trumps Protectionist Policies. SSRN Electronic Journal.
Rossi, D., Angelini, P., Metra, C., Campardo, G. and Vanalli, G., 2008. Risks for Signal Integrity in System in Package and Possible Remedies. 2008 13th European Test Symposium.
Uygur, E., 2018. Uncertainties, Protectionism and Slowdown in Global Trade. International Conference on Eurasian Economies 2018.
Wu, W.-C., 2018. Rethinking coalition size and trade policies in authoritarian regimes. Party Politics, p.135406881775251.
