Is Trump’s Trade Approach Good For The US Economy?

The tariffs introduced by Trump’s administration on other countries are widely viewed as protectionism measures. However, Trump’s administration has portrayed a completely different picture. White House top officials have publicly insisted that President Trump’s trade approach will be “massively good for the global economy and massively good for the US economy”. Their rationale is by introducing tariffs, Trump, with his “great negotiating skills” will somehow persuade other countries to open their markets to the US products and reduce trade barriers.

Ironically, what happens in reality is the opposite. As tariffs imposed by Trump’s administration accelerate, countries affected have retaliated by either imposing or threatening to impose tariffs on American products. Apart from a possible trade war with the world’s second largest economy, China, the US has extended its targets to its long-time allies such as Canada, Mexico, Japan, Australia and the European Union. The most recent move by Trump’s administration to impose steel and aluminum tariffs on the US allies has surprised many economists and even some of the Republican lawmakers. They warn that Trump’s tariffs will depress economic growth in the US and partially offset the positive effect of the US$1.5 trillion tax cut passed at the Congress and signed by Trump last year.

“Rocket Fuel” or “Threat”

Trump claims that his tax cut plan, together with his efforts to “roll back regulations” will provide “rocket fuel” to the economy. However, the internal findings from the White House Council of Economic Advisors point to the opposite, echoing the widely shared view by most economists that tariffs will hurt economic growth. Goldman Sachs researchers said the latest round of steel and aluminum tariffs would contribute to a reduction of 0.15 per cent in economic growth this year. Angel Gurría, Secretary-General of the Organisation for Economic Co-operation and Development expressed his regret at the proliferation of tariffs and described them as a “threat to the global recovery”. Apply the economics concepts you have learned in economics tuition from your economics tutor, explain why tariffs will hurt economic growth. Consult with your economics tutor in economics tuition class for a detailed explanation.

Tariffs, like other trade barriers lead to inflated import prices and reduced consumption and welfare of domestic consumers. It can lead to reduced competition for domestic firms and higher profit in the short run. However, the lack of competition will lead to reduced competitiveness and efficiency of domestic firms and affect their growth and survival in the long run. This is explained clearly in the economics lecture notes published by Mr Edmund Quek, Principal Economics Tutor of Economics Cafe Learning Centre, a premier economics tuition centre offering ‘A’ Level economics tuition in Bishan area. Mr Quek is a popular economics tutor with more than two decades’ experience in teaching economics tuition. Please visit Economics Cafe Learning Centre’s website at www.economicscafe.com.sg to find out more about his teaching methodology and read the testimonials by his students.

A Path of Isolation or a Trick to Bargain for a Better Deal

By imposing tariffs against both its traditional foes and allies, it seems that Trump’s administration has embarked on a path of isolation. Is Trump really crazy enough to take on the rest of the world?

Beijing has recently offered to purchase close to US$70 billion worth of American goods in exchange for the removal of tariffs on US$50 billion worth of Chinese goods. Although Trump has yet to accept the offer and the threat of an impending trade war between the world’s two largest economies is still on, I doubt Trump will really pursue such a path that will lead to “devastating” consequences as described by the World Bank.

Meanwhile, Trump has also announced new tariffs on its long-time allies such as the EU, Australia, Mexico, Canada and Japan. However, after meeting with the Canadian Prime Minister Justin Trudeau at the G7 Summit, the duo announced that they would work together to cut tariffs.

It remains to be seen if the US will be able to benefit from Trump’s “great bargaining skills”. My view is it highly depends on whether the rest of the world leaders are willing to make compromises to avoid trade frictions with the US.

Linda Geng

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