- If you have used any source in your assignment, you must cite the source in your answers and list it in the references at the end of the assignment.
- Please do your best to answer the questions based on facts and objective economic analysis, and refrain from biased political views.
- President Donald Trump famously tweeted that “trade wars are good, and easy to win” on March 2, 2018, as he sparked a trade war with Canada, China, and Mexico, and the EU. His full tweet reads:
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”
Using what we have learned in Chapter 9, evaluate his comments by answering the following questions:
- Suppose that the U.S. imposed tariffs on imports of steel and aluminum from China and China retaliated with tariff on imports of agricultural from the U.S. Both the U.S. and China are “large” countries. In theory, was this trade war really good? If so, to whom in each country? If not, to whom in each country? (1 point)
- In theory, was this trade war good to the overall national welfare of the United States and of China? (0.5 points)
- In reality, what actually happened according to the study authored by Pablo D Fajgelbaum, Pinelopi K Goldberg, Patrick J Kennedy, and Amit K Khandelwal? (0.5 points)
- Based on the context of President Trump’s tweet, he appeared to judge the outcome of a trade war for the U.S. by whether it can cut the U.S. trade deficit. Check the U.S. monthly trade data at https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services. Has the U.S. total trade deficit shrunk or widened from March 2018 to December 2021 (when most tariffs remained in place)? Are trade wars “easy to win” by Trump’s criterion? (1 point)
- On January 26, 2022, the World Trade Organization authorized China to impose retaliatory tariffs worth $645 million on imports from the U.S. in a dispute regarding U.S. countervailing duties on certain products from China. If China were to impose these retaliatory tariffs, what would happen to prices in the U.S. and in China? Would consumers and producers benefit or lose from these tariffs in the U.S. and in China? What would be the net effect of the tariffs on the overall national welfare of the U.S. and of China? Suppose both countries are large. (1 point)
- Briefly summarize the arguments for and against free trade. (1 point)