This now consumers must pay more for

This article, published by BBC, is about the US imposing tariffs on imported washing machines and solar panels. This was a step towards the president’s trade policy, “America first” is to protect local jobs from foreign competition. The first 1.2 million imported washing machines will have 20% tariff , and any quantity beyond that will be subject to a 50% tariff. For solar panels, the tariffs in the first year will be 30% although the first 2.5 GW of  the panels will pass tariff-free. Trade deficit is a economic measure of international trade and it occurs when a country’s imports exceed its exports: Trade Deficit = Total Value of Imports – Total Value of Exports. The US’s goal is to reduce the trade deficit problem. Protectionism is defined as governmental restriction on international trade. Tariff is a type of protectionism which is a tax imposed on imported goods and services. By imposing tariffs, America is hoping to bring jobs back and reduce imports.The graph above shows a shift of the world supply upwards with the addition of tariffs. This reflects higher costs. The new tariff price will allow domestic producers to produce more so they earn greater revenue because of the shift of Q1 to Q4. The government collects the import tax: tariff revenue. Consumers pay higher prices and also buy less of the product from 0-Q2 to 0-Q3. The X and Y are the inefficient form of welfare loss, because that amount would have already be produced at the world price but now consumers must pay more for domestic producers to supply it. The consumer’s demand decreases from Q2 to Q3. The Y is the loss of consumer surplus. Overall there is a reduction in imports, increased domestic production and higher consumer prices.The main advantage of imposing a tariff is increasing domestic employment. The tariff is set on imports so this decreases the flow of imports as they become more expensive. The domestic products are then more in favor and likely to be either the same price or lower than imports. The jobs will be safe from foreign competition. According to the article, “Shares in Whirlpool rose 2.5% … employ 200 more people.”. The second advantage is to overcome or decrease the trade deficit.  The protectionism policy was set in order to break the imbalance of balance of payments. When the trade deficit is reduced  it will promote domestic employment, increase in national net exports and more demand for nations outputs. As Trump mentioned, “making our products, stealing our companies and destroying our jobs”. The last advantage is that it might prevent from dumping of the foreign goods into the domestic market because of the “artificially low-priced Asian panels” which are below their average costs. The main disadvantage is misallocation of income. Domestic producer dislocate their capital and workers to be able to compete but realized that they don’t have the same comparative advantage so it inefficient. The second disadvantage is that China, as mentioned in the article, may open a production facility in the U.S to avoid tariffs. This would increase competition. Thirdly, the trade war is the last disadvantage, this is when two countries try to slow down each others’ trade. As China states, “not only aroused the concern of many trading partners but was also strongly opposed by many local governments and downstream enterprises in the US”.China has comparative advantage over the US in producing solar panels and washing machines therefore it would be a more rational decision to trade than to impose a tariff. Another solution should be introduced in order to increase jobs and decrease trade deficit.

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