Essay About Us Trade Deficit And Trade War

Trade War Between Us and China
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The rejection of trade agreements may be beneficial for the US in the short-run, since
they posses leverage though their trade deficit. In 2017, the US trade deficit amounted
to more then 759 Billion dollars (comp. Branch, 2009). Therefore, an increase in tariffs
will firstly affect the countries that import into the US. The US economy is rather
focused on its domestic market and will consequently be less affected than for instance
Germany, which has a great export surplus of 245 Billion (comp. Navigation und
Service, 2018). Thus, the tariffs will mainly raise prices of foreign products in the US
and protect the domestic enterprises. Even if China mirrors the raise in tariffs for US
products, the Chinese companies would still be affected to a greater extend, due to the
above mentioned trade deficit of the US economy.
However, in the long-run the US economy will also be harmed through a rejection of
trade agreements. Firstly, globalisation has lead to global value chains, which means an
iPhone is not manufactured in one factory, but in various factories around the globe.
Therefore, the iPhone, even if produced in the US would be affected by the tariff
through its multinational supply chain. Thus, economically speaking the increase in
tariffs will result in a rise of the product price, which will cause an inflation (comp.
Ritholtz, 2018). A inflation deteriorates the competitiveness and investments will also
decrease. Secondly, dishonouring trade agreements could undermine trust within the
global community. A globalised world requires a certain level of cooperation and trust is
essential for this cooperation. Additionally, the disregard of trade agreements also bares
social costs, since the greatest current issues of humankind like climate change and
nuclear proliferation require international cooperation, which is again build on mutual
trust (comp. Ruzicka & Keating, 2015, p. 1).
Multilateralism refers to a “process of organizing relations between groups of three or
more states“ (Scott, 2015). Multilateral processes took place to a great extend after the
end of the second world war (comp. Scott, 2015), which resulted in an era of prosperity.
However, Mr Pompeo does not seem to esteem such multilateral agreements, but rather
values the enforcement of national interest by their respective national leader. On the
one hand, a powerful country like the US may have advantages in bilateral negotiations,
but on the other hand smaller countries like Cyprus and Croatia profit from a unification
through the EU. So, I would make the agreement or disagreement to the statement of Mr
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Pompeo dependent on the subject and the power of the nation in question. For instance,
trade disagreement may be solved easily through bilateral debates, yet broader questions
like climate change involve more countries and require a multilateral negotiation.
Multilateralism entails multinational cooperation between nations. This results in a
decrease of tariffs, which will lower prices. For instance, since 1947 “the average ad
valorem tariff on industrial goods has declined from about 40 to less then 4
percent“ (Maggi, 1999, p. 1). The lowering of trade barriers is beneficial for the global
trade and a rise in trade results in a increase of the GDP. For example, “a rise of one
percentage point in the ratio of trade to GDP increases income per person by at least
one-half percent.a growth in trade (Frankel & Romer*, 2017, pp. 271). Lastly, I would
argue that the US is pursuing a policy of isolation, since they withdraw from several
multilateral agreements like the Paris climate agreement or from the INF treaty. Besides,
Trump also announced the retraction of the US troops in Syria. Moreover, Trump also
threatened to leave the NATO an essential security factor within the global community.
Furthermore, the US tries to solve conflicts like the struggle for dominance with China
bilaterally, like in the trade disagreement without the international community.
The US remains the country with the greatest military budget in 2017 it was estimated
to be 1.7 trillion US dollars (comp. Cebul, 2018). Its military abilities enable the US to
be a safeguard for global peace, since the second world war. The US is largely involved
in global