Economics Boom
Question #11
From a political point of view, free trade offers several benefits to countries. One of those benefits includes the capacity of a nation to build excellent relationships with others. these relationships could be leveraged politically for greater influence on the world’s power balance between nations. For instance, due to Canada’s good trade relationship with the U.S., the nation enjoys some level of protection from other countries by the U.S. whenever global matters are discussed. Another reason is that free trade allows markets to develop and interchange ideas. This leads to more variety of consumers in a given country. Politicians perceive this as a benefit to the common citizens the fact they can have a variety of products at an affordable price. This is because free trade leads to more competition which in turn leads to the price wars that eventually drive down prices for the common citizen (Krugman, Obstfeld & Melitz, 2013). For this reason, politicians perceive free trade as a way of improving the quality of life for those they represent.
These reasons have stood the test of time. Today, countries sill benefit and leverage their trade relationships with other nations for political gain (Krugman, Obstfeld & Melitz, 2013). For instance, before the recent trade wars between the U.S and China, the two countries have been having excellent political relationships. The political cold war currently in place between the two now that most trade agreements between them are over have is evidence that peace between two nations is also dependent on the trade relations.
Question #3
In international trade, countries can either have free trade with each other or embargos. A tariff or an embargo can lead to a net loss to the economy involved. This is because of the distortions that arise in the economy through the producers and consumers. However, if free trade is promoted, these distortions disappear and the national economy’s welfare improves. Therefore, it is upon the nation to decide when putting embargoes and tariffs on trade with other countries are worth the losses that will be incurred (Krugman, Obstfeld & Melitz, 2013). One of the losses would also be political. For instance, the U.S. has existing trade sanctions on Russia since April 2018. The sanction was put in place as a punitive action punishing the Russian officials that were found to be involved in the 2016 U.S. presidential election. The U.S. federal governments went ahead to freeze the accounts of 17 senior Russian officials (Bozyk, 2019). This has not only affected the trade relationship between the two nations but also the political goodwill between them.
The U.S. has several other embargoes placed upon different nations and there are others it actively trades with. In the last two or three decades, the country has placed severe or full trade embargoes against Cube (1960), Iran (1979), North Korea (1950), Syria (1986), and Sudan (1993). Further, the nation has been experiencing several strained relationships in the recent past from trade tariffs. Currently, the current administration in the United States has active tariffs on South Korean and Chinese products (Krugman, Obstfeld & Melitz, 2013). On March 2018, President Trump slapped a $50 billion trade tariff on all Chinese goods. At the same period, the presidency pushed another tariff which accounted for 25% of all South Korean trucks which means that no manufacturer of trucks from South Korea could export their trucks to the United States of America (Bozyk, 2019).
Other than tariffs and embargoes, the U.S. has had excellent trade relations with include Germany, Japan, Mexico, and the United Kingdom. Surprisingly, as per the data compiled by Bozyk (2019), the top five countries that the U.S. traded with in 2017 the most were Chine, Canada, Mexico, Japan, and Germany. As such, the country is expected to incur losses through its embargoes and tariffs on Chinese trade considering the trade balance between the two nations. Further, the nation experienced trade worth $82.5 billion with France, $68.3 billion, and $66.5 billion with Brazil (Zhang, 2018). The efforts undertaken by the government in imposing tariffs have had effect on the overall performance of the country in the global trade.
Not all efforts done by the U.S. in terms of sanctions have been unfounded. For instance, the countries that the nation has the biggest trade deficit with are China and Mexico at $375.2 billion and Mexico $71.1 billion (Connolly & Swoboda, 2018). As such, from a political point of view, it does make sense for the tariffs imposed to protect the local economy from the proliferation of foreign products from these countries into the market. The long-term effect may not be kind to the nation as more nations will take their businesses elsewhere due to the continued imposition of embargoes and tariffs.
References
Bozyk, P. (2019). Globalization and the transformation of foreign economic policy. Routledge.
Connolly, M. B., & Swoboda, A. K. (2018). International trade and money. Routledge.
Krugman, P., Obstfeld, M., & Melitz, M. (2013). International economics: Theory and policy (9th ed). Upper Saddle River, NJ: Prentice-Hall.
Zhang, W. B. (2018). Economic growth theory: Capital, knowledge, and economic structures. Routledge.
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Economics Boom was first posted on October 20, 2019 at 8:44 pm.
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