The Impact of US Trade and Economic Barriers to the Global Economy
Introduction
The perspectives of renowned US-based economic experts provide an explanation of the far-reaching implications of the protectionist trade relationship that is currently shaping the trade interactions on the global economy. The Economists have provided a resounding verdict on the extent at which the US economy is likely to be affected given the trade barriers proposed in the recent future. Trade barriers are detrimental and in the long run, affect the overall efficiency of the economy through decreased activities. When explained through the theoretical foundation of the comparative advantage theory, free trade involves the removal of systemic barriers except those that may affect the integrity of a country or leading to the weakening of its Gross Domestic Products (GDP). The practice of free trade has seen the emergence of policies that promote subsidized industries such as those in the Steel or agricultural sector.
Free trade is known to carry several economic benefits to countries that allow it to develop. Liang and Stephan explain that trade liberations have positive impacts on the economy with higher GDP growth experienced (46). The growth of the economy is dependent upon the productive resources and the technological innovation within the country. This is the catalyst to trade developments leading to higher economic growth prospects. It is evident that politics influences trade, especially from the context of global resource building and political partnership. However, there is a consensus that based on the ideology of strengthening international relations and healthy manufacturing processes leading to the stability commodity prices; the practice of free trade is more economically beneficial compared to the introduction of trade barriers or quota system practiced in the earlier markets.
Setting limitations to trade barriers in the economy leads to several advantage situations to a country on the global market. Similarly, the reduction of trade barriers allows gains envisaged from the following areas:
- The exchange of knowledge and ideas through travels and communications simulated on the platforms of research and development.
- The increased returns to scale from larger resource markets like in the case of US and China among other countries.
- Specializations and exchanges set the field for comparative advantage, leading to improved products’ efficacy and quality markets situations within a country.
- Technology-based exchange as an integral part of the global-based trade, which is facilitated by free trade agreements or practices.
It is important to note that trade restrictions affect the general economic well-being of a country. Several sectors are affected through the introduction of trade limitations, quotas or setting up of stringent trading tariffs on the global platform. Even though the US position of trade and restrictions is seen as a cautionary measure to the ailing industries in the US that struggling with several losses, more negative effects are likely to be experienced with the introduction of trade restrictions, especially in the aspects of employment line and reduced purchase capability of the citizens. The restrictions introduced by the US are, therefore, based on the analysis of likely job cuts on the majority of Semiprofessionals living in the US. This is likely to be impacted by increased unemployment or young people given the fact that they are the majority of labor providers to external products manufacturer in the US. This paper extensively captures the wider scope of trade in the US with regards to the barriers and introduction of tariffs to analyze the impacts of employment index and the long-term growth of the US and partner states GDP.
Literature Review
Preferential trade agreements (PTA) affect countries through the aspects of employment, productivity, and outputs. PTA is an agreement or treaty that actualizes the removal of trade barriers between partner states or countries as it develops trade partnerships and international commerce rules for global commodities. The US as of mid-2016 established approximately 14 PTAs with almost 20 trading blocs in order to increase partnership on the global trade platform (Bown and Meredith 73). The impacts of the trade deals have seen a direct influence in the pricing of commodities, leading to the advantage of the consumer assured of quality and value. The increased competition on the global platform based on the international trade and market leads to efficient performance of production processes in the value chain leading to efficient and value-based commodities manufactured in the market. However, the fact that the US is dragging its feet on the free trade partnership deals is a great worry to the global trading blocs.
Accordingly, the impacts of the trade restrictions to companies with operations on the global online business like the multi-billion business operated on the online platforms such as the US-based Amazon Company is yet to be fully analyzed. The advantage of the PTA accruing to the consumer includes lower prices for commodities or services in the market, including improved accessibility and value of the products (Claussen 345). The PTA agreements, therefore, according to Bown and Meredith have a direct advantageous effect to the local citizens compared to the political elites and business people who would be seen to control trade to the advantage of products linked to their private interests (56). The challenges to trade barriers seem to go beyond the interest of politics and employment aspects of a country’s economy. Claussen explains that the majority of countries that set out trade barriers do so based on an understanding that their people would be cautioned from unemployment in the evident the operations of the company are affected by an influx of imports to a country (351). The anticipation of the labor losses and unemployment due to the free trade defines the direction of economic development in a country. Indeed, this implies that countries, especially the US who implement trade barriers do so as a protective measure of the employment situations of the citizens (Bown and Meredith 73). However, even though various economic researchers seem to support the sentiments, Flentø and Stefano differ to hold the opinion that in the long run, the free trade arrangements carry more advantages to the global economy compared to the restricted trade propositions (367).
The observations of the comparative advantage theory on the international trade platform expect countries to produce commodities for which they have an absolute advantage with regards to material costs and labor matchup. Therefore, countries should concentrate on the production of goods or services, which they have an absolute advantage from the labor to material and logistics perspectives for exports compared to products they have a lower absolute advantage. Therefore, this implies that the US has the obligations to export to the world the products it possesses manufacturing advantage while allowing imports for products they have limited absolute advantage.
Populations and Labor Influence to Trade. It is evident that labor and populations have points of coalescing when compared to productivity ratios. Labor, as linked to populations, takes a pivotal role in the management of global trade due to the influence it has on commodity prices. The levels of exports from a county can directly influence the levels of employment within its borders. The economist newspaper reported that America shipped close to the US $ 1.547 trillion worth of goods around the world in the year 2017. The figures represented an increase of close 6.6 % from the years 2016. Therefore, the exported revenue, according to the report translated to approximately US$ 4700 for every resident citizen out of the 326.6 million people representing the total US populations. According to the above statistics, the rate of unemployment in the US was rated at 4.1% in January 2018, which is an improvement from the 4.8% reported for the similar period in 2017. An increase of the global trade provides an annexure to the improvement of employment levels within the global trade as exampled in the scenarios of the US. Even though the US has been a major beneficiary of the global trade given the level of exports revenues it received annually, the current discussions on trade barriers and possible introductions of quota system within its trade blocs are likely to cause rifts among the partners, leading to more stringent trading situations in the world.
There is a general worry that when expert opinion from economists within the US calls for free trade approach on the global platform, majority of citizens and political leaders are all harboring a move away from international economic engagements. One of the reasons several US citizens are focused on moving away from international trade deals from the opinions of trade experts is informed by their self-interest and personal gains. However, international trade is entrenched on the solid principles of give and take. The US citizens and the political leadership have centered their decision to exit from the global trade due to the benefits accruing from the trade directly to the US. Several scenarios present themselves in the discussion about global trade and tariffs. The primary scenario is guided by ethnocentrism where the race factor plays in with attempts to believe that products from certain races are of higher values and more trustworthy compared to products of other nations. Barriers or quotas for international trade, therefore, come as a result of an individualistic focus on the self-gain while setting up limitations to products that compete with the local goods, especially on factors of quality and price. The principles of international trade are focused on quality and price of commodities as a basis of importation. Once the standards of quality and price are met, free trade should be allowed based on the theories of comparative advantage.
The use of protectionism is adversely affecting the US own economy with several industries already experiencing the heat from the policy. The developments in the US solar industry is progressively depreciating given the tough tariff measures set for the industry by the federal government. The International Trade Commission (ITC) has in the recent history ignored the concerns of a large line the players in the solar industry, attributing the financial and operational losses of two of the major US manufacturing as emanating from competitive imports from Asia. Even though the move by the four jury bench, which voted in 4:0 is expected to present recommendations to President Trump for accent, world economists, including several US experts on tariffs and international trade are crying foul over the possible economic meltdowns in the industry. The introduction of quota rules and regulations and higher un-uniform tariffs in the market sets the global principles of fair trade on a backward stage. The envisaged gains of the World Trade Organizations (WTO) due to the reintroduction of quota or ununiform tariffs are in principle defeated. The solar industry in Asia, which is competitive and has gained immense support from a majority of US-based solar installers and installation companies currently suffers exports to the US market. Even though the federal laws allow for the incorporation of companies from Asia to the US, until such companies are incorporated and start operations within the U.S. (a matter that could take several months if not years) the citizens and corporations in the US dependent on solar energy will suffer, leading to domestic and systematic losses from all the perspectives of corporate and individual solar users. It is expected that moving the solar cell factories to the jurisdictions of the US would help the companies to escape the stringent trade barriers.
Economists argue that countries rich in mineral resources but an equal advantage of relatively cheap labor have a competitive advantage on the global market compared to those that suffer limitations to the two determiners to effective trade principles. In fact, this makes some countries simulate their developments and GDP faster compared to others who take several years to attain self-sustaining trade benefits. The opening up of free trade, thus influence positive competition within the specific industries, leading to pressure on profits. According to Singh and Vivek, the environment is the highest beneficiary of competitive global trade due to the focus on quality and value to the customer (332). The final products are often marketed on an environmental rider with companies endeavoring to produce more products using few resources while employing limited labor. Similarly, this fact is supported by Meixell and Patrice who assert that lean and green global supply and value chains are the primary models used to attain effective manufacturing sector, responsive to the environmental needs of the global economy (67). Accordingly, free international trade leads to increased quality and satisfied employee due to the benchmarking standards introduced by the various regulators of commerce and global quality assurance organizations.
Global trade equally simulated inter-industry developments leading to departmental growths in multinationals. Empirical researchers have proved that free trade expansions have the potential to enable better uptake of technologies and product innovation systems. This is realized through the greater selections of types of products manufactured by a company. For instance, a manufacturer of refrigerators may have the opportunity to differentiate their products from high to low power industrial cooling systems to respond to a need in the market. Trade barriers and differentiated tariffs affect business relationship on the global platform (Bown and Meredith 75). Larger nations protect against the infiltrations of low-skilled or labor-intensive products to their markets coming from comparatively less developed nations. Another important example of the differentiated trade tariffs is the relationship between the US and Bangladesh compared to the European countries. The US gain from a tariff of 15 cents from products of Bangladesh origin compared to 1 cent tariff from products from major western European countries (Bown and Meredith 67). Worth noting is that this is one of the best examples of unbalanced trade on the global platform
The Study Methodology
The paper employs the secondary research methods to gather and analyze the data collected for the research. The report investigated through the secondary literature available for the topic to ascertain the Correlations between various literature, ratios, or findings annotated by various authors and financial experts. The study consults the deductive approach due to the positive attributes of the research. According to Rachel et al., the representation of the positive views in the deductive approach evaluates the relationship between the results of the research conducted and the finding of the study linked to the existing theories developed based on the finding and reasoning of several analysts (3). Therefore, the report makes comparison to the available statistical data and literature reviews, including publications, investigating through the reports from financial and economic experts and from the global financial review papers, articles, and other financial publications whose focus is on the global trade barriers, especially with a biased focus on the aspects of trade barriers and tariffs adjustment between the US and its trading blocs.
Therefore, the discussion takes a statistical review of the facts and the relevant published figures and reports for empirical analysis. The data are analyzed from financial reports, accredited global trade reports of commerce and other financial reporters on the global business arena. On the other hand, the data is analyzed qualitatively based on the literature review developed from peers reviewed articles, academic documents, and financial journal providing an expert view of the challenges experienced on the global business platform.
The primary questions investigated through the study were the effects of trade barriers and tariffs adjustment to the global trade. Countries have experienced systemic challenges on the global platform just to ensure that they remain relevant and consistent with their global commodities. This necessitated the investigation to ascertain the extent at which tariffs readjustments and the subsequent wishing away of the free trade agreements and ties in the context of the US markets. The comparison was made based on the data received from the secondary sources that guided the constructions of a viewpoint and a variance tested on the hypothesis.
Main Results and Conclusions
The surprise departure of Britain from the European Union together with the global economic decisions of the US president defines another level of political influence on the global trade platform. Political risk has damaged global value of investment bonds, precipitating a recession on the global manufacturing and financial institutions. The political decision of President Trump’s administrations to cut off taxes for companies was a welcome move that brought stability in the stock market. However, the debates over trade barriers are affecting the global economy. The World Bank reports on the aspects of trade barriers, and tariffs reveal a higher elasticity level of the price with regards to agricultural products. Brad explains that developing countries have applied relatively high tariffs leading to an overall higher tariff protection for agricultural products (48). The type of tariffs according to Brad affects various industries in the global market differently (49). Majority of countries have used variant rates and ratios at their customs department to calculate the ad valorem duty and the specific duty whichever becomes higher to impose on products.
Variance in trade laws and the adjustments witnessed through changes in tariffs among other adjustments lead to several job gains and losses in equal measures. Cletus is of the opinion that trade policy adjustments have effects on high skilled workers and low skilled workers in the U.S. (5). Trade policy adjustments carry the effects of job gains to those of high skills while loses are witnessed to middle or low skilled labor that offers more of casual assignments. Increased imports to the US have affected the residents of the U.S., leading to higher unemployment levels trickling to the escalated spending on social support by the federal government. Citizens who suffer job losses due to trade laws and policy adjustments in the US incur challenges of reduced income levels, reduced health and pension benefits with other costs like relocation and the psychological torture of job loss reigning in.
The federal government implements a program for trade adjustment assistance to caution workers affected by job losses due to adjustment in the policy on trade. The program, which immensely supports the affected citizens, concentrates its efforts on retraining and alternative skill building for preparedness to a different labor market. The program, according to Cletus supports citizens through unemployment compensation over a defined program and an out of area job search allowance among others (16). Despite the efforts of the American government to compensate the affected workers due to the high percentage of imports affecting the operations of local industries, the challenges of the rationalization of trade and tariffs barriers is yet to be sorted albeit the over growing criticism from other US trading blocs.
The level of jobs lost compared to the education level statistics reveals a worrying trend. These statistics correlate with the literature of this study. Unskilled labor is getting challenges compared to professional within various industries. This statistic supports the position of Cletus, which maintains that the trade policy adjustments affect employee with lower qualifications compared to those with higher academic achievements (16). From the statistics above, even though the level of employment uptake by 1964 was above 96%, the downward trend has been consistent, especially with regards to the high school graduates or the employee with lower qualifications than high school. The statistics reveal that whereas the job statistics in the market for bachelor degree and higher remains above 92%, the depreciation for the high school or below qualifications is below 84%. This implies that more high school graduate will continue losing a job due to adjustments in trade laws in the US. The fact that US manufacturing industry is staggering is a fact that cannot be wished away
From the above analysis, the statistical data making comparisons on the level of employment reveals a stable trend up to 1987 where the manufacturing employability starts to experience a downward trend. As the manufacturing sector suffers reduced employment, the manufacturing aimed at imports experiences stable growth trend. Wendy et al., explain that the US manufacturing sector is affected by the labor cost compared to other Asia nations like China that have a competitive advantage and highly qualified labor (382). Labor cost is a primary determinant of commodity prices, with countries having higher minimum wage experiencing higher costs like the US compared to countries with lower wage like Brazil and Mexico. Majority of the US citizens are more sensitive to costs of commodities compared to the benefits that accrue from the trade barriers. Even though free trade increases imports into the American market, leading to reduced jobs, citizens prefer it due to the cost implications of reduced commodity prices it brings out. Economists advise that free trade leads to higher development prospects compared to regulated and increased trade, which leads to the higher availability of job. The situations presented when rating the two variables is complex in the way observations are made. It is common to find majority succumbing to the pivotal point that does not make economic sense to earn from a paying job when commodity prices are high. Therefore, they support the idea that it is better to have cheaper commodities in the market attracting growth through savings compared to the latter.
International trade is conducted on the platform of complementary relationship. This implies that a country will export to another partner state not based on the surplus principle, but based on a partnership arrangement that is beneficial to both. The US as a global trade partner should endeavor to provide a market for other countries products just as other trade partners provide a market for the country’s products.
The analysis of the US imports from China as indicated above reveals the various industry ties with the country which can be explainable as a healthy business relationship. Majority of Chinese exports to the US as explained by the chart above are housewares products, toys, and sporting goods at 26% of the total Chinese exports to the US market. In essence, the exports from China touch a majority of US citizens’ lives more directly and on a daily basis through commodities like housewares, garment and fashion, computer, and accessories. The US equally gains from the trade through commodities exports to China. Transportations and equipment for manufacturing rate the highest on the export to the Chinese market. This implies that trade between the US and China defines the relationship between the two countries. The US exports to China are detailed below.
The comparison of the US exports to China also reveals a somewhat steady business relationship amongst the world most powerful countries. It is important to note that while China exported approximately 19% of computer parts and other related equipment to the US in the year 2011, the US in the years 2014 exported to the Chinese market at 9.9% on computer and electronic products. The aspect of complementary provided by these statistical data presents a scenario of partnership on the global sectors aimed at filling the gaps witnessed in the economy. Trade barriers envisaged from the administration of the US President, Donald Trump threatens to draw back the gains made from the post-world War II (WWII) period to the communist period to arrive at a globalized economy of partnership acknowledged through the angles of globalization. Post-communism period into the globalized spectrum saw the world as one mega-market of close to 7 billion target consumers. Indeed, this has given credence to the aspects of innovation and research and developments which is premised on the platforms of the identifications of supply and demand gaps in the global market and the generation of products and services approaches that fills the gaps. The gains of specialization of trade emanate from mutual benefits that occur between the trading nations. The trade between the US and China can be described through the theories of absolute advantage. The principles of comparative advantage allow two trading partners to produce commodities at the lowest cost and market it leading to competitive advantage.
Differences in comparative advantage arise between countries due to the variances in the relative abundance of the factors of production. Given that the US has relatively abundant of highly skilled labor, it is possible to find specializations during the production of commodities that require highly skilled labor. The intensity of this labor yields higher production, leading to an improved national income. Conversely, China which has a relative abundance of low skilled labor but suffers limitation of high skilled labor finds specializations in the production of goods that require low skilled workers intensively. The trade would continually raise income status for the country. Comparisons between the US and China, according to Wendy et al., are viewed through the prism of globalization and international trade agreement where nations are expected to produce what they can use with the least amount of resources at their disposal to gain competitive advantage through effective pricing (380).
The perspective of trade has changed over time with countries progressively voting to return to the old post-communism regimes of individualism approaches to trade, leading to self-gain rather than the collegiate model proposed by WTO. Trade barriers have continued to take effect, negating the gains of globalization and free trade partnerships. Global trade thrives on an international platform where politics and political policies are supportive and offer an enabling environment for balanced trade. Political realignments and political leaders have continued to frustrate the principles of global trade and the frameworks that facilitate its achievements. The closest example to the souring political decision-making dilemmas with regards to trade includes the UK exit from the European Union. The move was influenced by politics and the suspension of the North Atlantic Trade Agreements – (NAFTA) by the US. The overgrowing political interference with trade is working negatively for the international trade.
The economic benefits of free trade stand out as every nation stands to benefit. Even though the US opposition on imports is based on protectionism models to ensure that its industries enjoy ease from global strains caused by relatively cheap imports from European and Asian destinations, the advantages of free trade still stands out as beneficial to countries. Trade restriction as introduced by the US has diverse effects on the world economy due to the fact that the US itself does not consume entirely what it produces. The WTO guidelines for trade where the US is a signatory encourages trade without barriers on the global platform in order to promote economic development, improve livelihoods, and expand GDP, especially for developing nations.
The US policy of global trade that promotes the increased tariffs and the introduction of quota system have both advantages and disadvantage in equal measures. The US industries that have been struggling to survive have an operational advantage through reduced competition from countries with relatively cheap products into the US market. US-based industries can now operate to optimum potentials where they are assured of the market that is different from where cheap imports were flooding the market leading to reduced product prices and loses. The workers in the US are other beneficiaries of the trade limitations and tariff adjustment. This is so because the local companies with the opportunity of business and manufacturing will employ crews among other positions leading to improved household incomes for the US families. However, it is important that the gains brought about by PTA are not disregarded in order to afford the opportunity for fair trade on the global platform for all nations. Every country in the world has trade preference and should be allowed to discuss and strike trade partnership without trade or stringent tariff requirements exposed to them.
