Discussion – Effects of Trade Policies and Tariffs

Discussion – Effects of Trade Policies and Tariffs

Discussion – Effects of Trade Policies and Tariffs

#1 Some politicians, labor unions, and special interest groups argue that US trade deficits are harmful to the economy and nations that run large trade surpluses with the US are benefiting from unfair trade practices and agreements. These parties support increasing tariffs on imports, elimination, or re-writing of trade agreements.

Respond to the following in a minimum of 175 words:

Discuss what credible economists say about the effects that tariffs, changing trade agreements, and/or manipulating exchange rates will have on the total US trade balance.
Do you agree with their assertions? Why or why not?

Student Responses:

#2 AM
Tariffs, Exchange Rates, and United States’ Trade Balance

Both tariffs and exchange rates have significant impacts on United States’ overall trade balance. According to most economists, these two factors mainly affect the balance of trade on an international scale. A critical analysis of existing literature reveals that tariffs have negative short-term impacts and relatively acceptable long-term effects, while exchange rates affect different countries differently.

Tariffs have contrasting impacts on short- and long-term bases. In the short run, foreign product consumers take time to the high prices associated with increased tariffs, a condition that deteriorates the balance of trade (Adhikari et al., 2019). Consequently, there is never an immediate decline in the demand for foreign gods after an increase in tariffs. However, increased tariffs tend to improve the United States’ balance of trade in the long run. According to Adhikari et al. (2019), this improvement is brought about by the J-curve phenomenon. Overall, increased tariffs tend to upset the United States’ trade balance in the short run and improve it in the long run.

Fluctuations in exchange rates may not have uniform impacts on all countries. In the United States, a developed country, currency fluctuations are expected to improve the trade balance (Choi, 2017). However, Choi (2017) maintains that the trade balances preceding actual currency depreciations do not conform to J-curve patterns. Even though the effects of currency depreciation on real GDP differ across countries, currency-owned nations like the United States often show different value-and-volume-effects compared to nations without major currencies. Overall, most scholars believe that currency depreciations enhance United State’s trade balances.

Some scholars’ assertions on the impacts of exchange rates and trade tariffs are not acceptable since they seem illogical. For instance, imported goods are always sold at higher prices when import tariffs are increased. According to the law of demand, customers would not need time to adjust to these changes, particularly if such products and services are characterized by high price elasticity of demand. Additionally, the notion that countries with major currencies would not be adversely impacted by currency devaluation abyes that the currencies of such nations never depreciate, which is impossible. Overall, deeper studies should be conducted on the impacts of tariff increases and exchange rate fluctuations on the United States’ trade balance.

References
Adhikari, D., Rao, S. P. U., & Boudreaux, D. (2019). Effect of import tariff on a bilateral trade. Journal of International Finance and Economics, 19(3), 63-70. https://doi.org/10.18374/JIFE-19-3.6
Choi, M. S. (2017). The recent effects of exchange rate on international trade. Prague Economic Papers, 26(6), 1-29. https://doi.org/10.18267/j.pep.632

#3 BG
Good evening Class,

In recent years, President D. Trump has deemed shrinking the United States exchange deficit. The President and his administration have taken on renegotiating the exchange grants and moving forward with “Purchase American” arrangements. The administration continues to challenge China over what is seen as its monetary conditions, which will drawback exchange shortages and reinforce national security. Some don’t view exchange deficiencies as hurting the economy and warn opposition to gain the exchange with other nations. Then you have those that don’t dispute the exchange but rather just accept the conditions. Shortfalls happen when a country imports more than it trades. An example of the shortfall is during 2018, and the United States sent 2.500 trillion in merchandise and ventures while it imported 3.121 trillion, leaving an exchange deficiency of 621 billion. The current administration has promised to shrink the exchange shortfall, but their arrangements have been out of order. Placing higher taxes on China merchandise would most likely be helpless in its efforts. Still, some financial experts convey bargaining would be the better choice in accessing China markets for the United States exporters could hold better results. I understand wanting to keep the U.S. economy healthy. For laws and regulations put in place to assist in the U. S. growth and health, but when I look at some clothes I purchase or some items that I utilize, I see more made in China, Taiwan, Japan, Indonesia even Honduras. I don’t see much made in the United States. We operate on importing and exporting goods and services. By adding more taxes on a country, the cost may be placed back on the economy, thus hindering what people can afford to purchase. Laws and regulations were put in place to assist in the U. S. growth and health. Still, when I look at some clothes I purchase or some items that I utilize, I see more made in China, Taiwan, Japan, Indonesia even Honduras. I don’t see much made in the United States. We operate on importing and exporting goods and services. By adding more taxes on a country, the cost may be placed back on the economy, thus hindering what people can afford to purchase.