trade

Some politicians, labor unions, and special interest groups argue that US trade deficits are harmful to the economy and nations that run large trade surpluses with the US are benefiting from unfair trade practices and agreements. These parties support increasing tariffs on imports, elimination, or re-writing of trade agreements.
Respond to the following in a minimum of 175 words:
• Discuss what credible economists say about the effects that tariffs, changing trade agreements, and/or manipulating exchange rates will have on the total US trade balance.
• Do you agree with their assertions? Why or why not?

Week 6 Discussion

ANSWER

Effect of Tariffs, changing trade agreements and Exchange Rates on total U.S. trade balance

Considerably, trade agreements benefit the producers and consumers since they have a significant impact on opening markets abroad or restricting trade in the United States. Trade agreements are good for the Americans, but this does not mean that they benefit all Americans. Some firms have taken advantage of these opportunities, which have led to the loss of opportunities for other Americans. Running much higher trade deficits than other developing countries means an increase in job-related losses. For instance, changes in the exchange rate can impact trade balances in import and export prices through changes in income flows and asset prices.

Changes in import and export prices mean that the producers will alter the volumes and amounts of imports and exports as businesses and consumers substitute for lower charged products (Mankiw, 2018). Attempts to change the current account balance through the implication of trade deficit is likely to create distortions in the trade balance. The U.S. trade agreements reduce trade surpluses and increase trade deficits, which negatively impact the trade balance (Mankiw, 2018). For instance, economists argue that trade agreements such as U.S. –Korea and NAFTA trade agreements have favored foreign manufacturers, thus leading to the U.S. trade deficit. Tariffs will affect the U.S. economy since it will create uncertainty about future challenges to trade as well as make capital and consumer goods expensive, thus reducing their purchasing power.

I support the elimination of trade agreements and increasing tariffs on imports since trade deficits have negative impacts on the economy and only benefit nations that run large trade surpluses with the U.S. benefiting from trade agreements and unfair trade practices. Trade deficits lead to an imbalance of trade due to the difference between the country’s export and import payments. Tariff increases result in high inequality, exchange rate appreciation, which impact the trade balance. Trade agreements and tariffs on imports lower the number of imports made by the United States, resulting in an imbalance of trade. I agree with the assertions since tariffs, changes in trade agreements, and exchange rates impact import and export, which lead to changes in the trade balance.

References

Mankiw, N. G. (2018). Surprising Truths About Trade Deficits. The New York Times.