Undoubtedly, global trade flourishes on free entry markets. However, protectionist measures such as the imposition of tariffs derails international trade. Recently, the United States Economic policy implementation under the Trump administration threatens globalised trade following the introduction of tariffs and the trade wars between it and the Chinese economy is likely to have negative consequences on global trade. Whereas tariffs will protect American industries, the effect on other world economies, OPEC, NATO, ASEAN and other economies will be negative in terms of higher trading costs, higher consumer costs and dissolution of trade arrangements. For multinationals to thrive, they must establish their businesses in countries with regional economic arrangements and avoid trading in countries involved in trade wars. Overall, protectionist measures such as tariffs harbour international trade.
Undoubtedly, the Trump era has stirred major economic changes, globally and locally. Recently, the trump administration introduced increased tariffs on the steel and aluminum industry in a bid to protect the local industry from cheap steel and aluminum imports. Specifically, the Trump administration has imposed a 10% tariff on steel and 25% tariff on the aluminum industry (Bouchet & Parilla 2018).It is believed that the United States has declared a tariff war with China, which is an equally large economy hence the effects could be disastrous from the global economy as a whole. Additionally, the U.S. government has taken to protectionist policies such as impositions of tariffs and monetary policy likely to disrupt globalized trade (Toh 2017).According to Toh, protectionist measures are likely to protect local industries in the United States at the expense of globalization thus injuring open and upcoming economies such as Malaysia.
According to some economists, the imposition of tariffs on the steel and aluminum industry will protect the domestic industry in the United States of America. Due to the higher tariffs, there will be less importation of steel and aluminum products. Also, there will be less likelihood of cheaper and low quality steel and aluminum following the tariff imposition(Swanson 2018).Owing to high tariffs, there will be no stiff competition for the steel and aluminum industry hence the industry will grow. However, protectionist policies such as tariffs imposition might lead to retaliatory measures by the countries affected by the tariffs (Peterson et.al 2017).For instance, following the tariff trade war between the United States and China, might prompt China and other trading partners to impose their own protectionist measures as a response to the tariff imposition. In the event that there is a retaliation, there will be a break down in global trade.
Whereas local industries in the United States might thrive due to import tariff, retaliatory measures by its trading partners might curtail global trade. Specifically, the U.S exports were affected by retaliatory tariffs from China against $75billion worth of exported merchandise (Murphy 2018).The recent tariff wars between the U.S and China has affected The United States Agriculture, auto and steel and aluminum industries among others.Specifically,the United states ,agriculture and manufacture sectors are highly targeted for retaliatory tariffs(Murpgy 2018).In the event of such retaliatory tariffs, the American farmer might have to incur additional costs in the exportation of agricultural produce to the global market thus reduced profits.Noteworthy,the average cash price fell to 7.79 dollars per bushel which is considered the lowest it has been in ten years.
Essentially, this goes to show the American farmer profits will significantly drop leading to possible unsustainability of the agriculture industry in America. Additionally, the retaliatory tariffs will make America’s agricultural products less competitive thus reduced revenue for the American economy thus limited production, lower profits and possible layoffs due to high tariffs in the sector.
According to U.S experts, the auto-industry is thriving without the tariff imposition.However,with the likelihood imposition of tariffs, the American Auto-industry will not flourish (Harini 2018).Tariff imposition on the auto-industry will stifle production and sales thus reduced revenue for the auto-industry, might lead to unemployment due to reduced production and possible shut-downs of auto-players. Due to the imposition of tariffs on steel and aluminum, the American consumers will be subjected to higher prices by the industry due to lack of competition from outside economies).
Essentially, higher prices for domestic consumers is a negative effect of the tariff imposition on the U.S. steel and aluminum sector pf the economy (MacBride 2018).On a global front, there will be a reduction in the global trade volume due to the tariff barriers. In addition, there is uncertainty of foreign investment due to the uncertainty of tariffs on different sectors of the U.S and global economy. Countries that depend on the American market in terms of steel aluminum will likely lose the high market share they enjoyed prior to the imposition of tariffs and other barriers. Overall, most countries such as Canada and Malaysia will be negatively affected in terms of economic growth due to the Malaysian open economy and its dependence on the Chinese import market. By virtue of the China –United States trade war, there will be negative economic growth rate for Malaysia .Equally, the Canadian economy will experienced reduce exports due to high tariffs thus reduced exportation revenue.
Following the imposition of tariffs and other protectionist measures, Malaysia is likely to suffer economically. Undeniably, 30% of Malaysian exports are made to China .But owing to the trade wars between China and the U.S, Malaysian exports will reduce. In addition, retaliatory response to the Tariff imposition by the U.S, the Chinese will equally affect the revenue from Malaysian exports. Arguably, the American economic policies could slow down Canada’s economic growth rate .Specifically, the supply chain, market share of agricultural produce and manufactured products, purchasing power of the Canadian economy might be adversely affected by the American economic policies (Desjardins 2018).Approximately,3/4 of Canadian exports have their market in the U.S With the imposition of higher tariffs, less revenue for Canadian exports and possible end to trading arrangement between the two countries.
For some economists, the OPEC countries the tariff wars between the Americana and the Chinese is beneficial for OPEC Countries in the sense that the production of crude oil by the United States is getting limited (Paraskova 2018).The fact that the United States share of the crude oil market will reduce will make the country imposition of tariffs less severe to the rest of the global economy. Less market share translate to less power in the pricing of oil thus limited effects of protectionist policies on the rest of the economy. For European Union countries will incur tariff like the rest of the economy when it comes to steal and aluminum exports to the United States. Whereas the price of goods will increase in the United States, it will be cheaper elsewhere as per the international theory of trade. The imposition of tariffs on Mexico is likely to interfere with previous trade arrangements between NAFTA and the United States economy.
Inevitably, the effect of tariffs impact on multinationals due to the fact that they engage in international trade. Multinationals dealing with the United States economy, will have to incur additional costs in the cost of doing business due to the high importation tariffs to the American economy (Pearce Trust Blog 2018).As a multinational, a potential multinational owner will have to incur additional costs either from tariff imposition by trading partner or due to retaliatory response to imposed tariffs. As a graduate in International business, I would advise an owner of a multinational to consider trading with countries not affected by the tariffs and other trade wars. Through trade wars, the multinationals might incur additional costs in the course of tariffs, retaliatory measures and other protectionist measures .I would advise the multinational owner to establish businesses outside the United States and China due to the existing renewed trade wars to avoid additional business costs and reduced revenue.
Additionally, I would advise a multinational to consider regional trading arrangements .Regional trade arrangements are likely to protect multinationals from protectionists tendencies due to the fact that regional arrangements are likely to be open market and unrestrictive in trade arrangements due to the mutual goal and benefits .Usually, regional trade arrangement encourage free enterprise among the members of the regional economic bloc thus so much benefits for multinationals such as open market, large market access, no tariffs and custom barriers thus maximum benefit for multinationals(Weforum,2017).
Conclusion:
Overall, tariffs imposition is likely to protect American industries from outside competition and cheaper exports at the expense of globalized trade. However, with restricted imports into the American economy, consumers are likely to incur higher prices. The imposition of tariffs on imports into the American economy, will reduce the revenue for the exporting countries, reduce their production volumes due to high operation and trade costs hence there will be little international trade cooperation. The response to tariff imposition might have negative effect on the U.s economy such as retaliatory protectionist measures thus limited global trade. For multinationals to thrive, they ought to trade with countries not involved in trade wars and those in regional trade arrangements which encourage free market economies as opposed to protectionist economies.
References:
Bouchet, M & Parilla, J. (2018). How Trump’s steel and aluminum tariffs could affect state economies.Brooking.Edu. [Online].Available at https://www.brookings.edu/blog/the-avenue/2018/03/06/how-trumps-steel-and-aluminum-tariffs-could-affect-state-economies/[Accessed 9 Oct 2018]
Harini, V. (2018). Tariff hikes could be ‘real shock to the system’ for the thriving US auto industry, CEO says .CNBC [Online].Available at https://www.cnbc.com/2018/07/04/tariffs-pose-threat-to-thriving-us-auto-industry-ceo-says.html[Accessed 9 Oct 2018]
MacBride, J. (2018).The risks of U.S Steel and Aluminum Tariffs. Council of Foreign Relations. [Online].Available at https://www.cfr.org/backgrounder/risks-us-steel-and-aluminum-tariffs[Accessed 9 Oct 2018]
Macleans. (2018).And the biggest economic uncertainty for Canada under Trump is.Macleans. [Online].Available at https://www.macleans.ca/economy/economicanalysis/and-the-biggest-economic-uncertainty-for-canada-under-trump-is/[Accessed 9 Oct 2018]
Murphy, J.G. (2018).Tariff wars hits U.S Agriculture and manufacturing .U.S Chamber of commerce. [Online].Available at https://www.uschamber.com/series/above-the-fold/tariff-war-hits-us-agriculture-and-manufacturing[Accessed 9 Oct 2018]
Paraskova, T. (2018).The U.s China Trade war is great News for the OPEC. Oil Price.Com. [Online].Available at https://oilprice.com/Energy/Crude-Oil/The-US-China-Trade-War-Is-Great-News-For-OPEC.html[Accessed 9 Oct 2018]
Pearce Trust Blog. (2018).Global trade war-More Tariffs for Multinational Businesses?.Persa-Trust. [Online].Available at https://www.pearse-trust.ie/blog/global-trade-war-more-tariffs-for-multinational-businesses[Accessed 9 Oct 2018]
Peterson,T.,Scxhoof,U.,Yalcin, E., Felbermayr ,G & Steininger, M.(2017).Global impact of a protectionist U.S. Trade Policy .Global Economic Dynamics.[Online].Available at https://www.bertelsmann-stiftung.de/fileadmin/files/BSt/Publikationen/GrauePublikationen/NW_GED_Focus_Paper_US_Protectionism.pdf[Accessed 9 Oct 2018]
Swanson, A. (2018). Trump to Impose Sweeping Steel and Aluminum Tariffs. The New York Times. [Online].Available at https://www.nytimes.com/2018/03/01/business/trump-tariffs .html [Accessed 9 Oct 2018]
Weforum. (2017).To open up global trade we need to understand “protectionism”.Weforum.org. [Online].Available at https://www.weforum.org/agenda/2017/06/global-trade-protectionism-g20-explained/[Accessed 9 Oct 2018
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