Economics Report: Trade Wars, Tariffs, and Economic Policies

This economics report examines the impact of international trade, trade barriers, and trade wars, particularly focusing on the US-China trade conflict. It explores the benefits of specialization and the disadvantages of trade barriers, such as tariffs, which can hinder economic growth. The report analyzes the impact of tariffs on both countries, including reduced GDP and market instability. It proposes solutions like currency devaluation and deflationary strategies to mitigate the negative effects of trade wars. Devaluation involves lowering currency values to make exports cheaper, while deflationary strategies aim to reduce aggregate demand through monetary and fiscal policies. The report also discusses the reduction in consumer satisfaction and lack of innovation due to trade wars, recommending that both countries lower tariffs to facilitate economic growth and improve overall welfare.

Running head: ECONOMICS
Economics
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Table of Contents
Answer e..........................................................................................................................................2
Policies that can solve the problem.............................................................................................3
References........................................................................................................................................5

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Answer e
International trade benefits the countries in terms of specialization and using goods that
are unavailable in their own economy. Certain economies have an added advantage in the
production of certain goods meaning to show comparative advantage. Putting trade barriers
cannot be of any solution rather implicating ways in the role of reduction in GDP and retarding
the growth process of the country (Beverelli, Fiorini and Hoekman 2017). The government
enforces huge tariffs on foreign countries, either to earn extraordinary revenues from goods
which have immense aggregate demand in their countries or to end the overall import of that
good.
The trade war between USA and China has retarded the efficiency of demand outlook
mostly. The disastrous effect is seen on part of many products from Apple as restrictions has
caused a hike in many of its related products. To this, the USA President Mr. Donald Trump has
advised Apple not to sell goods of Apple to China and keep it bonded to America itself since
there is no requirement to give tax that lowers the market profitability (Brack 2013). However,
this is not impossible as most of the raw materials for Apple comes from Asian countries; selling
goods in the America would only limit the production level. It is advised to reduce the tariff rate
for China.
The political and educational background does not allow China to proceed with tariff
solutions. As seen in the previous chapters, the war between China and USA is likely to continue
as the President Mr. Donald Trump has announced (Brack 2013). The high tariff rate such as 200
billion dollars on Chinese good from entering into the US market posing a threat to the China’s
GDP(Gross Domestic Product) level to go down by a percent in the coming year. Oil price have

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fallen down due to the trade conflict between China and United States of America. All other
economies benefitted from the process except China and USA due to tariff rate. The obvious
need is to build ways to lower the trade restriction and end trade war (iastate.edu 2019).
Policies that can solve the problem
Devaluation of current money value- that requires lowering of currency values with
regard to other countries. It is better for an economy to improve given that price of imported
good is less than the price of imported goods. Cheaper exports leads to rise in the capacity of
exports making it to higher revenue (Beverelli, Fiorini and Hoekman 2017). When the demand is
relatively elastic to price, the devaluation in price gets balanced as the current account balance
confides on the whole value. In regard to this, if USA can make policies so as to make the export
less costly, a positive outcome will be enunciated on the part of US GDP growth. Enforcing huge
tariff is only making the situation worse as most of the raw materials is given by other countries.
Thus, production goes down outstanding to trade deficit due to the reason that demand for export
and import is inelastic in nature. However, while devaluating more effort has to be given to
inflation rate which decreases the competitiveness of the country.
China benefits by importing cars all over the world but mostly from USA. Keeping a
fixed amount of tariff at forty percent against USA has led a loss in its market for China as
demand for cars did not fall as thought to be and a high priced import cause value of trade deficit
to go up.
China has the world’s largest car industry both demand and supply wise. However, imported
automobile has a little share in the industry as around 85 per cent of the vehicles that has been
sold to China are massed in the country through joint endeavour (Humphreys and Eisner
2014).Deflationary Strategies-Strategies indulged in the lowering of aggregate demand to reduce

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the rate at which prices are rising. Inflation raises the level of aggregate demand. This is shaped
due to approval of proper monetary and fiscal policies.
Monetary policy- Government promulgate practice of increment in interest rates that
undergoes high cost of mortgage and debt repayment. As a result of this, people will have less to
spend causing lessening of import demand. Reduction in aggregate demand will lower the
inflation rate making more competitive export worldwide (thebalance.com. 2019). Deflationary
behavior forces manufacturers to lower the cost of production and selling them at lower cost
which has more buyers than what it had previously.
Fiscal policy- The policy of government to lower the money value of the commodities.
The key idea is to maintain public spending and tax rates to monitor growth of an economy.
Decreasing the rate of tax cause public spending to go up with increased demand. These
strategies are adapted to lower the money value since more spending leads to buying similar
good at high price. More job openings are fabricated showing an out grow in employment rate
with quality growth objectives. Generally, about 2-3 percent in GDP is expected to rise with
enlargement of the business cycle. A highly developed country like USA can enact this way to
minor the usage of China’s products for counter balancing the trade deficit (thebalance.com.
2019).
One of the biggest disadvantages of trade war is the reduction in consumer satisfaction
that poses a negative impact on the prosperity of economy. Higher tariff instills in the mind of
Chinese consumer to buy less of foreign goods and more of domestically produced goods.
Investors feel demotivated to invest in these scenarios (Balassa 2013).Without competition from
foreign markets, domestic companies gain over the market power and does not improve or
innovate technological methods to solve issues. New products are also not launched and

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customers are forced to use same commodities. Economy undergoes serious problems of
stagnant growth. It is highly recommended for China and USA to stop the trade war and lower
the tariff rate to facilitate economic growth and happiness among people of both the countries
(Hoekman and Shepherd 2017)
References
Balassa, B., 2013. The theory of economic integration (routledge revivals). Routledge.
Beverelli, C., Fiorini, M., and Hoekman, B., 2017. Services trade policy and manufacturing
productivity: The role of institutions. Journal of International Economics, 104, 166-182.
Brack, D., 2013. International trade and climate change policies. Routledge.
Brack, D., 2013. Trade and environment: conflict or compatibility. Routledge.
Hoekman, B., and Shepherd, B., 2017. Services productivity, trade policy and manufacturing
exports. The World Economy, 40(3), 499-516.
Humphreys, D. K., and Eisner, M. P., 2014. Do flexible alcohol trading hours reduce violence?
A theory-based natural experiment in alcohol policy. Social science & medicine, 102, 1-9.
iastate.edu. 2019. Can a tariff be counted as a fiscal policy measure? | Department of Economics.
Retrieved 6 August 2019, from https://www.econ.iastate.edu/node/653
thebalance.com. 2019. How Congress Manipulates the Economy. Retrieved 6 August 2019, from
https://www.thebalance.com/what-is-fiscal-policy-types-objectives-and-tools-3305844

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