The United States is currently imposing a 25% tariff on approx. $250 Billion of imports from china and a 7.5% tariff on approx. $112 Billion worth of imports from china. As of allegations on Chinese unfair trade practice in 2017, the investigation was done by the United States trade representative which concluded in 2018. On the same day president Trump announced tariff on imports from china up to $60 Billion of imports. The administration soon publish the list of about $50 Billion worth of Chinese products to be subjected to new 25% of tariff began from July 6,2018 and on august 23,2018 remaining $16 Billion went in to effect of tariff which amounts to $12.5 Billion tax increase. In response to that the retaliation measures adopted by China, on Steel and Aluminum $2.522 Billion worth was put on tariff. And the rates of tariff vary from 15-25%, several rounds of tariff were imposed on more than $106 Billion worth US goods, for an estimated levy of $11.6 Billion and incase of retaliatory tariffs GDP of US (in 2018) where fell to -8.28 Billions of dollars. Generally, Imports increase when a country’s production of domestic goods and services is not enough to meet the domestic demand. Imports also increase when the consumers purchasing power increase to create demand for expensive foreign products. It provides opportunities for domestic business to produce quality goods and services to match the foreign products. With domestic product available at low price the inflation rate gets decrease. Provides choice to consumer’s with wide Varity of both domestic and imported goods. And in such a case increase in imports indicates a fast-growing economy and growing economy attracts more foreign investment. But in the long run it is not beneficial. When trade imports increase beyond certain extent, prices of goods and services decreases due to high competition. Consequently, domestic companies are not able to manufacture and produce goods at such a low price. As a result, employees lose jobs and companies manufacture fewer goods. The scarcity of domestic goods and services result in more imports and as a result more trade deficit. As the analytics had shown, it’s the increase in the purchasing power of the USD which surge the trade and current account deficit. As the result of the swift plan of Ronald Regan to bring down the value of US dollar. Plaza accord was signed on 22 Sep, 1985.
To reduce the US current account deficit which had reached to 3.5% of GDP but largely fails from Japanese side. It also creates the problem for financial sector, because they were able to reap the gains from the rising value of the USD. But however, the both legs of the US were stucked and in order to get rid of it, the Central Banks from both the sides had participated in the accord and had assisted with the 10 Billion Dollars to make it work. As a result the manufacturing sector of US became more competitive in the export market but largely was unable to succeed in the Japanese domestic market due to Japanese structural restrictions on imports. And it was postulated that plaza accord contributed to the Japanese Asset Price Bubble which progressed in to a protracted period of deflation and low economic growth in japan which is known as lost decades. In the formal case of China (Asian Economic Giant) cause, the US trade policy has the implementation of broad and unconditional US free trade policies and formal trade agreements in the preceding decades. And this needs to address more rather than going for trade wars. Which had the adverse effect on the economies of both sides. No political image had come up so far as to curb these deficits or to introduce the economic reforms to ensure the balance of trade. May be current administration may come up with the economic reforms and reduce or mitigate the tariff rates or the impact of tariff, which were plugged in by Trump administration. There is a need to adopt the import certificates (Ics). Given by Warner Buffet in the year 2003. The same can be adopted now. To reduce the trade deficit within its frame work. US shall make the implementation of the import certificates to those importers who want to import the goods and services to US. As it will serve like double edged sword, it will act as duty (indirectly) and subsidy to exporters to export more. By that means it will stimulate the exports. And reduce the Trade and Current account deficit in Long-run. By adopting various set of measures to reduce the deficit like exchange depreciation, Devaluation, import substitution, Expenditure reducing policy. Instead of going for trade war these measures would curb the deficit. And stop the two economic giants to create the economic as well as social and political disruption in both territories. This frame will allow the US to remain within its means.
(The author is pursuing the master’s degree from Kashmir University. Views are his own)