Recently, the call for protectionist measures has been voiced in some Western countries with perhaps the loudest voice coming from the United States.
Protectionists believe by using tariffs and quotas they will protect domestic industries from foreign imports, such as the U.S. with China. But this move does little more than create trade wars and blocks domestic goods from entering important markets.
Take for instance the Trans-Pacific Partnership of which the U.S. was the lead under former President Barack Obama. The agreement between 12 nations was supposed to force China to conform to stricter trade norms, but was abandoned under current President Donald Trump.
The agreement would see the signing of the Comprehensive and Progressive Trans-Pacific Partnership between the remaining nations. The signing made almost all goods traded between these countries free of tariffs. By not signing onto the agreement, the U.S. will have to compete in these markets with countries that have an advantage. The agreement also opens the door for countries to have free trade agreements with countries it didn’t have agreements with before, such as Canada with Japan.
Another example of a protectionist measure was the U.S.’ implementation of 25% tariffs on steel and 10% tariffs on aluminum from Canada, Mexico, and China. This measure only resulted in retaliatory tariffs on U.S. goods by all three countries and had the potential of delaying the passage of the USMCA agreement as noted by Canada’s Foreign Affairs Minister Chrystia Freeland, who said ratification of the USMCA would be “very, very problematic.”
Now that the U.S. has dropped the tariffs, ratification of USMCA can go forward.
Not only has China retaliated against U.S.’ tariffs on steel and aluminum, but it has also levied tariffs on $60 billion of American goods in response to more than $200 billion worth of tariffs on its products by the U.S. with Trump threatening another $300 billion covering virtually all Chinese imports.
The trade war between the two countries doesn’t seem to be waning and it’s believed consumers will bear the brunt of it as prices are expected to rise to cover the loses incurred by companies.
It’s estimated that if $500 billion in Chinese exports are hit with a 25% tariff, the annual cost for a three-person household in the U.S. would be $2,200, according to the New York Times.
Warnings by economists that trade wars have no winners can be seen with the deficits incurred by the U.S. so far.
The country’s deficit has increased by $119 billion since Trump took office, reaching $621 billion, the highest it has been since 2008, according to the American Commerce Department.
Although these are a few examples of how protectionist policies can affect the economy, it’s hoped that a more global perspective will prevail in the near future.