The Implications of the Current Trade War – Introduction
Trade is probably the most important thing in the world. This is because trade enables people from around the world to live successful lives. Through trade, farmers are able to sell their products to overseas customers. Miners in South Africa get access to the markets they need while vehicle manufacturers get the market they need to grow. As such, trade is a common thing that connects people from all over the world.
Trade is dynamic and is regularly changes. World leaders are constantly looking for ways to boost trade from their own countries. 20 years ago, the leaders of the United States, Canada, and Mexico came together to form a regional trading block. Decades ago, leaders from Europe formed the European Union. This was created to promote trade in the region. More trade deals have been made recently.
These trade deals help countries export and import more. By so doing, they are intended to lift the lifestyles of the local people.
Globalization has played an important role in all this. It has had major benefits. For example, the resident of the United States now buy cheap clothes because trade deals have opened the economies of countries like China. In the US, wages are so high that it is impossible for apparel companies to manufacture there.
In general, globalization has led to the fall in price of most products. This has led the people to buy more which has contributed positively to the economy. On the other hand, communities have been devastated by this trade. For example, before NAFTA, states like Michigan were leading the country because of the vehicle manufacturing. Cities like Detroit became so successful. However, with NAFTA, manufacturers found a better way to slash costs was to relocate their plants to Mexico. The vehicles they manufactured there were brought to the country through the Mexico border.
When Donald Trump was vying for presidency, he campaigned aggressively in these states. He promised the workers that he would bring back the dead industries. As president, he is working to solve this by imposing tariffs on imports. He is also reviewing the vehicle imports with the aim of reviving the auto industry by imposing tariffs on imports.
Last week, he signed into law tariffs from Chinese goods. In the previous week, he had imposed aluminum and steel tariffs. In response, the countries that have been affected have issued retaliatory tariffs. Very soon, we expect Trump to impose additional tariffs. Retaliatory tariffs will follow shortly.
At the end of this, tariffs will not bring back the jobs Trump is promising. In fact, they will lead to job losses and increased prices. This is because the US major exports are agricultural commodities. The importing countries can easily get alternative agricultural producers. On the other hand, US imports are mostly in apparel and other fast moving consumer goods. Therefore, since there will be no major alternatives, the consumers will be forced to pay higher prices.
Trump followed the wrong strategy on his trade war. The best way was to team up with the US allies and retaliating against China. This is because the allies share the same challenge with the US on China. They want better access and more IP protection in the country. Approaching China as a team would be a much better process.