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Econ 15 Trade barriers Capitol Report Why the U.S.-China trade deficit is so huge: Here's all the stuff America imports Published: June 27, 2019 at 11:10 a.m. ET MarketWatch By Jeffry Bartash U.S. and China trade standoff: What's at stake 1. (9) vocab U.S. Imported record $539 billion in goods from China in 2018, in billions trade war Computers & electronics $186.5 import Electrical equipment $49.9 Miscellaneous manufacturing $44 net importer Machinery $38.7 export Clothing $29.8 tariff Fabricated metal $26.5 deficit Furniture $25.8 Transportation equipment $21.7 surplus Chemicals $21.4 quota Plastic & rubber products $20.2 subsidy Leather and similar $20 U.S. exported $120.3 billion in goods to China in 2018, in billions The highs (few) and lows (many) of U.S. Transportation equipment $27.8 Computers & electronics $17.9 trading with China Chemicals $16.2 Machinery $11.1 The simmering trade war between the Oil & gas $7.1 U.S. and China has led both sides to raise Farm crops $5.9 Miscellanous manufacturing $3.7 tariffs, but the lopsided trade relationship Waste & scrap $3.5 between the two countries means the impact Electrical equipment $3.4 Source: U.S. Census will fall heaviest on Chinese producers and week and press reports suggest a temporary truce American consumers and farmers. The U.S. imported a record $539.5 billion in might be declared. U.S. tariffs on $200 billion in Chinese imports goods from China in 2018. The U.S. is a net were recently increased to 25% from 10%. importer from China in most market segments Trump also said the U.S. would begin the such as consumer electronics, apparel, furniture process of applying the 25% tariff to another $325 and industrial supplies. The one major exception: billion in imports that have been left alone so far. agriculture. It could take several months or longer to put them By contrast, the U.S. shipped a much smaller into effect, though, and that's given the two $120.3 billion in goods to China last year, Census trade figures showed. countries more time to negotiate. Households and companies could pay more Exports to China fell from almost $130 for a variety of consumer staples or business billion in 2017 as buyers shunned American soy and corn. U.S. farm exports to China fell to $5.9 supplies. The U.S. imports thousands of products from China ranging from TVs and cell phones to billion in 2018 from $15.9 billion in the prior year. clothing and handbags to industrial chemicals and President Trump has raised or in the process rare metals. of hiking tariffs on virtually all goods imported The U.S. has run large deficits with China from China because talks to resolve disputes over fairer trading rules have faltered. Yet the president for years and in some cases no longer produces certain goods such as consumer will meet with the Chinese leader, Xi Jinping, this electronics that are popular with Americans. It won't be easy, and it might even be impossible, to deficit-2018-03- reduce the gap much any time soon. 23#:~:text=The%20U.S.%20imported%20a%20record.The 20one%20major%20exception%34%20agriculture. 2020- The U.S. is expected to maintain a large 7-2 surplus with China in services, which totaled $40.5 billion in 2018. The surplus largely reflects 2. (2) What is one reason China might have spending by Chinese tourists and exchange an advantage in producing more computer/ phone students. technology than the US? Explain how that works. So far the trade dispute has hurt China more 3. (5) What do you suppose will happen if the than the U.S. Yet economists, business leaders and US continues buying more from China than they investors worry that a long-lasting standoff buy from us? Explain, in economic terms. between the two largest economies in the world could result in lasting damage to the global economy if it metastasizes. https://www.marketwatch.com/story/heres-all-the-sniff- the-us-imports-from-china-thats-causing a huge-trade- BARRIERS TO TRADE Definitions: Barriers to Trade: Policies that restrict the free flow of goods and services between countries; types commonly used are tariffs, quotas, export subsidies, and standards. Tariff: Tax on imported goods or services; a tariff may be used to raise revenues for the government imposing the tariff, but is more commonly used to reduce consumption by domestic consumers of the imported good or service. A tariff increases the price of an imported good, thus making the good less attractive to consumers than a less expensive domestic good. Quota: Limit on the amount of an imported good allowed into the country during a given period of time (i.e., one year); a quota reduces not only the amount of imported goods available but also the total amount of that good available; when supply is decreased, price increases for the consumer; thus, a quota, like a tariff, raises the prices of the good for consumers. Export Subsidy: Government financial assistance to a firm that allows a firm to sell its product at a reduced price; this makes the product more competitive when exported to other countries. Consumers (both at home and abroad) benefit from lower prices but the subsidy is paid for by taxpayers in the country providing the subsidy. Product Standards: A type of "hidden" trade barrier, most countries set their own standards for product safety, content, packaging, etc.; if a standard for a product differs in Country A from the standards of Country B, firms in Country B will spend additional money in production to meet the standards of Country A if they want to export their product there; this addition to the cost of production will make their product more expensive for consumers in Country A to buy and will encourage consumers there to buy domestic (Country A) products instead. Consumers in Country A will pay higher prices for these goods than they would without a trade barrier. Questions for Discussion 4. (8) With each type of trade barrier, who is affected? 5. (8) How does each policy affect prices and jobs