Trade is a central aspect of any economy as goods and services are exchanged in return for financial capital. President Donald Trump has based his economic agenda on making modifications to the way that the mechanisms of international trade operations. While it is not necessarily his goal to reduce trade, he feels it is beneficial to the US economy to exit major international trade agreements, reduce trade deficits with countries such as China, and implement tariffs.
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This strategy is based on nationalist political beliefs. It is something that many Americans support, as they also feel that the current trade strategy has led to detrimental consequences for the national economy and US world power. I disagree with this perspective, as the radical practices that the Trump administration is attempting to implement would damage the US economy.
One of the primary arguments for restrictions is based on reducing trade deficits. In this view, the US imports a significant amount of foreign goods, thus suppressing domestic production and hurting US businesses that choose not to outsource. However, trade deficits are purposefully established in specific bilateral agreements based on economic factors such as supply chains and economies of scale. This results in lower prices, reduced market fluctuations, and more variety of goods for consumers.
The policy cannot quickly alter these factors since any redistribution of trade balances would most likely result in shortages and skyrocketing prices. Also, assets spent by the US on imports flow back into the country through domestic investment, which increases productivity and overall growth. Any attempt to eliminate the deficit would result in disrupting the net inflow of investment, lowering market values, and raising interest rates.
One of Trump’s proposed ways to reduce deficits and bring production back to the US is through increasing import tariffs on critical products such as steel. However, as is evident in the history of trade policy, the results would be catastrophic. The purpose of Trump’s policy is to implement tariffs on materials, which could potentially revitalize a domestic industry that has declined steadily due to the availability of cheaper foreign alternatives. However, the tariff attempts to punish other countries and disrupt the process of international trade without addressing the actual issue: a US industry that has fallen behind and become uncompetitive.
Prices will rise as producers will be forced to make up the losses due to paying tariffs or purchasing significantly more expensive materials domestically. Furthermore, firms will have to rapidly cut unnecessary expenditures, causing massive layoffs across the various industries and sectors of the economy that will be impacted by tariffs on raw materials. Various economists and national governments have expressed concern about this policy, predicting the possibility of a trade war. American companies and products will be burdened with higher tariffs abroad. The global economy will shift away from the US, leaving the country with less influence, assets, and GDP, which does not benefit the US population in any form.