There exist various forms of protectionism that are used by nations to restrict trade. Among these forms of protectionism, one of them, which is common, is imposing tariffs on the imports of a country. The definition of a tariff is given as “a tax imposed on imported goods and the government has various reasons to use this type of protectionism” (“U.S increasing tariffs for Chinese imports.”). It was recently reported that the U.S government has made a decision to increase the tariffs on the Chinese imports taken to the United States. This decision came up after the U.S Congress “gave the go-ahead on a bill that increases tariffs on Chinese goods” (“U.S increasing tariffs for Chinese imports.” para 2). This move has brought in a great debate; some people have been supporting the idea while others have been opposed to it following the costs and the benefits that will come with it. The focus of this paper is to look at the costs and benefits of tariffs imposed on the Chinese imports by the United States to the American and Chinese people.
Costs and Benefits of Tariffs on Chinese Imports
Following the increase of the tariffs on Chinese imports, will lead to an increase in the prices of Chinese goods in America. (“U.S increasing tariffs for Chinese imports.” para 2). The Chinese goods will suffer an immense setback since fewer American people will buy the Chinese imports on the U.S market (Willis, para 3). The imports from China which were formerly perceived as being cheaper will no longer be appealing to the consumers in the United States. There will be a decrease in the level of exports of China to America and this will lead to a decrease in China’s aggregate demand since these exports have been a major contributor to the aggregate demand of China. The relationship between China and the United States will eventually be affected negatively and China may take some retaliatory measures (“Who’s afraid of the dragon?” Para 16).
However, the U.S presents some justifications for its move to increase the tariffs. For instance, following the debt crisis and the economic recession in the United States, this country sees it to be quite vital to take some measures to improve its economic status. The American government believes that by bringing up the level of the tariffs on Chinese imports, a larger number of the American people will spend their money on the commodities that are domestically produced because these commodities will be cheaper than the imports. The local producers will make more profits and they will also increase their production levels following the increased demand (Mankiw 416). It is believed that the result of this will be increased demand for domestically produced commodities and the subsequent increase in the levels of production. Eventually, there will be a need to employ more people from the country. More jobs will be created which will help bring down the level of unemployment in the country. However, some people have challenged such an idea by claiming that the U.S may not be able to produce goods that may be cheaper than the Chinese imports and the result of this is harming the American consumers (“Who’s afraid of the dragon?” para 8). Still, others believe that U.S unemployment is caused more by a lack of motivation and not lack of jobs (“Who’s afraid of the dragon?” para 5). Increasing the tariffs on Chinese imports is a move that has to be keenly looked at.
Increasing the tariffs on Chinese imports by the American government has both costs and benefits to the Americans and Chinese people. The increase will reduce the aggregate demand of China since the Chinese exports to the American market are a major contributor to this aggregate demand. Following the increase, the American people will no longer prefer buying Chinese imports. This may negatively affect the relationship between the two countries. On the other hand, the Americans hope to derive some benefits. It is projected that the demand for domestically produced goods will increase since these goods will be cheaper than the imports from China. The increase in demand will in turn increase profits and the level of production and the ultimate result will be reduced unemployment because more people will be required to work in the domestic companies.
Mankiw, Gregory. Principle of macroeconomics. New York: Cengage Learning, 2011.
“U.S increasing tariffs for Chinese imports.” Marshy’s magazine. 2011. Web.
Willis, Tyler. Chinese import tariffs are a bad idea. 2011. Web.
“Who’s afraid of the dragon?” The Economist. 2011. Web.