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What Trade Wars Mean for The US Economy

3 minutes

The media generally seems to be shouting that Trade Wars are bad and that the Trade Wars between the United States and China will cause economic repercussions that will hurt the economy. But how much of this is noise, and how much of this is just a topic being used to weaponize political debates. In today’s article we will share a sober economist perspectives on the Trade War situation between the United States and China and explain why Tradewars aren’t necessarily always a bad thing. But before we get into this article, please understand that this is just an educated and informed opinion and nothing more than that.

How Did The Trade Wars Begin?

In a nutshell as part of the President Trump cabinets agenda, President Trump made claims backed by supporting third party data showing that the United States, for being the world’s leading GDP, still might have some holes to fill in their “economic bucket”. It comes with the territory when you’re a large economic powerhouse that their might be ways in which you’re pushed around by other countries because you have “less to lose” since you’re “holding the best hand”.

President Trump essentially is now in a dispute where he’s butting heads with the powerful President Xi Jinping of China for a renegotiation of trading policies in order to maximize the internal GDP of the United States while also cutting into the profits of China by what some estimate to be 15%… The 15% can be deeply concerning for overall life of Chinese workers who generally, like a lot of Americans, live almost paycheck to paycheck and need work to support their future.

This is the basis of the argument and everything unfolds around this idea that if the US has more profits to take home, it’ll benefit the global economy, driving the production worldwide and creating more work, despite the forecast that their may be an initial pain period where suffering will occur for some businesses in China.

So in a one liner- “Trade wars have the capacity of hurting both American and Chinese families,” and that’s why it’s called a war.

Pro Trade Wars/ Pro Tariffs Argument

So this is a side of the argument most people haven’t actually heard enough of just yet, and it’s a pure economists point of view from why a tariff on goods between China and the United States would actually benefit both countries. Most arguments are that trade wars are bad, because they don’t encourage a free market, when asked why, arguments tend to default into David Ricardo’s, a 1770 British economists, theory of comparative advantage that proves that free trade is always good for everyone.

However pro tariffs tend to say, that hasn’t been true for 200 years since in our current marketplace David Ricardo’s model now has 7 major flaws that make this “free trade” model exploitable.
These reasons are considered to be:

1) That competitive edges are sustainable
2) That there are no externalities
3) Production factors move between industries without cost
4) There’s no change in the ratio of income and equality
5) The idea that international capital is not mobile
6) That short term capital causes long term growth
7) Dependent on the idea that foreign productivity doesn’t improve

The pro tariffs then tie this argument together by showing simple understand of how GDP works in our current economy. Our GDP is made of four different parts. Consumer spending, Investment, Government Spending, and the Trade Sector (Exports minus Imports). So C + I + G + (X-M)= GDP

In the United State’s case, we have more imports than we do exports with a $600 billion national trade deficit. So to illustrate these points lets show a simple example. If your Consumer spending is $5, Investment is $5, Government Spending is $5, and Exports Minus Imports is 5 minus 10, it would look like $5 + $5 + $5+ ($5-$10)= GDP of $10….

If we could place a tariff on the export so the United States spends less than $600 trillion our GDP would increase because instead of our example of ($5-10) it could be ($5-8) helping the United States get a GDP of $12 in this example. The goal of the pro-trade war agenda is not to raise costs for anyone or make anything more difficult, but its to leverage our loyalty as business partners into negotiating better terms of service so the United States can lower budget deficit, boost our own nation’s economy, and drive more capital into the pockets of the working class of the worlds largest GDP, so we’re able to expand our industries, thus creating more business overall in the worlds playing field.

Summary?

What are your thoughts on the Trade Wars? Do you believe that tension will cause more tariffs to be placed on the United States? Do you believe our trade deficit will get larger as a consequence, making our GDP slow more? We’d love to know your feelings on the matter, and if you have an educated opinion please let us know your thoughts on facebook!