Case Study 2 : China / US Trade war
In the last few years of his presidency, Donald Trump announcedPDF ever-escalatingPDF import tariffsPDF against Chinese made goods, in an effort to boost US production, and lower the trade balance. (Note: because the NY Times needs an account / subscription, PDF versions of the articles are also linked)
According to this site, the tariffs (see total tab) have impacted nearly 400,000 jobs, causing unemployment to rise, and thus long run GDP to fall.
Further, look at the numbers for the US trade deficit between May 2018 (the start of the tariffs) and January 2020 (when the Phase One deal was signed)
The trade war brought on by Trump’s protectionist policy has left many wondering have the tariffs made America great again?
1. What models / Chapters are used in this case study?
2. Use labour market statistics to determine if the fall in GDP projected by taxfoundation.org is reasonable
3. Did the tariffs have the expected impact on the trade balance?
4. Given the revenue generated from US tariffs, will it be possible to offset the economic loss in the long-run? Will resulting revenues have an impact on the federal budget?
5. Consider the USD/CNY exchange rate. Use this information to reconcile your expectations of the model.
6. What assumptions made in the model we studied are valid in this case? What assumptions are invalid?
7. Look at what has happened to China’s growth rate over the last few years. Considering the retaliatory tariffs imposed by China, are the results consistent with the model?