ECO 535 Wk 6 Apply Signature Assignment International Trade Summary

ECO 535 Wk 6 Apply Signature Assignment International Trade Summary

Evaluate how US trade policy changes in the last 2 years affect global trade activities by multinational corporations.

One of the recent policy changes relating to trade within the past two years is the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act signed into law by Biden in August 2022 (Luo et al., 2023). Through the Act, the Federal government appropriated $52 billion for research and manufacturing of semiconductors. Further, the act allocates $200 billion toward investment, research, training, education, and tax incentives targeting the semiconductor manufacturing sector. The act aimed to reduce the US’s reliance on foreign semiconductor suppliers and create a stable internal supply.

Following the act’s implementation, US multinationals were effectively stopped from expanding semiconductor manufacturing in China and other countries deemed a security threat to the US. Instead, these multinationals, would, in the future, expand internal semiconductor manufacturing. Apart from security reasons, there are also trade reasons that influenced the decision. Despite being the world’s largest economy and among the biggest consumers of semiconductors, the US only produces about 12% of the world’s semiconductors (Badlam et al., 2022). In the same breath, US multinationals do not manufacture advanced semiconductors, and the companies rely on outside suppliers for the critical products (Badlam et al., 2022). Semiconductors are key in various sectors, including telecommunication, transport, banking (ATMs), computing, and military systems, among multiple other applications. Therefore, the CHIPS and Science Act has played a significant role in creating a stable internal supply and is a positive effort toward reducing the US’s trade deficit against China.

Furthermore, changes implemented under the act indicate a shift by the US from trade liberalization to illiberal and market-distorting policies. As a result, multinational enterprises must reconfigure their geopolitical alliances and rivalries to support manufacturing activities. Instead of partnering with external strategic partners to lower costs, American MNEs will have to seek local partnerships. Besides, the policy will force previous local rivals to collaborate since they cannot contract external partners. Following the act’s implementation, US MNEs like Apple which requires semiconductors for manufacturing iPhones and other devices, now contract the Taiwan Semiconductor Manufacturing Company which has a factory in Phoenix, Arizona.

Discuss credible economists’ opinions on the long-term effects of trade and tariff policies changes in the last 2 years.

According to York (2024), the Biden administration reached a deal to replace steel and aluminum tariffs with tariff rate quotas in 2022. The change implied that some levels of imports would not be subjected to tariffs, but imports exceeding certain levels would be subjected to tariffs. The policy would reduce tariffs paid by US companies on imports to a given level. In the same breath, some imports exceeding quota restrictions are subjected to higher tariffs. Apart from aluminum and steel products, the US has also increased tariffs in other sectors with the objective of protecting American companies.
Economists argue that the imposition of higher tariffs on imports by the US government triggers retaliatory trade tariffs impositions hence; canceling the benefits that may have been accrued as a result of the imposed tariffs. Although other countries cannot tax US products directly, retaliatory tariffs result in higher prices for US products. These countries tax the entities that import US products, leading to higher final product prices. Economists aver that tariff imposition and retaliatory tariffs amount to stealing from rival countries, without necessarily denying rivals access to local markets (York, 2024). To avoid back-and-forth trade wars, the US should adopt trade talks and agreements framework to address trade deficits with other countries.

Explain the effect recent changes to trade and tariff policies have had on your employer, you, or someone you know.

One of the American employers affected by changes in trade and tariff policies is Ford. The imposition of tariff quotas on steel and aluminum is estimated to cost Ford Company approximately $1 billion annually, translating to about $700 per vehicle produced (Durante, 2022). Much of the increased production cost is attributed to higher steel and aluminum tariffs. Notably, firms like Ford face aluminum-burdened price hikes even if the type of aluminum imported is not covered under section 232 of the tariff quotas (Durante, 2022). For instance, Ford Company imports recycled aluminum, which is supposed to be exempt from tariffs. However, aluminum producers usually impose a premium price targeting the Midwest region, based on regional variations in demand and supply. The increased production costs for Ford Company have had an impact on the company’s profitability and operations.

Conclusion

The CHIPS and Science Act of 2022 is among the recent trade policy changes that have affected American Multinational enterprises. The trade policy placed an incentive for American corporations to produce semiconductors locally. Although the US government cites security concerns as the primary motivation for the policy’s implementation, it is clear that the US is pursuing illiberal and market-distorting policies to protect local manufacturers. Economists argue that the US’s pursuit of tariff quota systems leads to retaliatory tariffs, canceling the benefits of initial tariffs. The US should negotiate and reach agreements with trading partners to reverse the negative impacts of trade wars. The negative impacts of tariff wars are noticeable in companies like Ford, which imports aluminum in large quantities, leading to high production costs.

References

Badlam, J., Clark, S., Gajendragadkar, S., Kumar, A., O’Rourke, S., & Swartz, D. (2022, October 4). The CHIPS and Science Act: What is it and what is in it? | McKinsey. McKinsey & Company. https://www.mckinsey.com/industries/public-sector/our-insights/the-chips-and-science-act-heres-whats-in-it

Durante, A. (2022). How the Section 232 Tariffs on Steel and Aluminum Harmed the Economy Key Findings. https://taxfoundation.org/wp-content/uploads/2022/09/How-the-Section-232-Tariffs-on-Steel-and-Aluminum-Harmed-the-Economy-2.pdf

Luo, Y., Findley, E., Distinguished Chair, & Assche, A. (2023). Techno-Geopolitical Uncertainty and International Business: Implications of the United States Chips and Science Act. https://www.queensu.ca/sps/sites/spswww/files/uploaded_files/Events/Trade/JIBS%20-%20Chips%20Act%2020220923.pdf

York, E. (2024, June 26). Tariff Tracker: Tracking the Economic Impact of Tariffs. Tax Foundation. https://taxfoundation.org/research/all/federal/trump-tariffs-biden-tariffs/

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ECO 535 Wk 6 Apply Signature Assignment International Trade Summary

Exam Content

Promoting international trade is not a zero-sum game. It is a win-win proposition; both parties gain from trade.

Consider the following:

ECO 535 Wk 6 Apply Signature Assignment International Trade Summary

• Tariffs are paid by the citizens of the country imposing tariffs, not by the citizens of the country producing the products upon which the tariffs are levied.
• The term “trade deficits” is a misnomer. Every country’s trade is always in balance.
• Trade deficits do not mean the US no longer produces anything to export. The US is the world’s second largest manufacturer and the world’s second largest exporter of manufactured goods.
• Trade deficits reflect a strong economy. Trade deficits rise during economic expansions and fall during economic contractions. Unemployment falls as trade deficits rise and rises as trade deficits fall.
• Imports and exports are complements, not competitors. Both are necessary and both contribute to economic growth.
• Roughly one-third of all US imports and exports is trade between US multinational companies and their overseas subsidiaries.
• Foreign-owned companies operating in the US number in the thousands and provide directly or indirectly jobs for more than 13 million US workers (roughly, 10% of the US workforce).
• US trade deficit in goods in 2018 (as a % of GDP) was the same as it was 5, 10 and 15 years earlier.
• The rise in US goods trade deficit with China has not increased the US total goods trade deficit. It has been offset by reduced goods imports from other trading partners.
• There is a strong correlation between the rise in world trade and:
  • The rise in world GDP
  • The dramatic fall in the world’s extreme poverty rate
  • The rise in world life expectancy
• For every US manufacturing job lost to trade between 2000 and 2010, seven US jobs were lost to domestic productivity improvements. Those seven jobs cannot be brought back from overseas because they never left the US.

Write a 825- to 1,050-word evaluation of credible economists’ unbiased opinions on the benefits, costs, and results of current US trade and tariff policies. Complete the following in your evaluation:

• Evaluate how US trade policy changes in the last 2 years affect global trade activities by multinational corporations.
• Discuss credible economists’ opinions on the long-term effects of trade and tariff policies changes in the last 2 years.
• Explain the effect recent changes to trade and tariff policies have had on your employer, you, or someone you know.

Cite at least 4 academically credible sources.

Format your assignment according to APA guidelines.

Submit your assignment.