Week 6 – Signature Assignment – International Trade Summary

Week 6 – Signature Assignment – International Trade Summary

How US Trade Policy Changes Have Affected Multinational Corporations

The US-China Economic and Trade Agreement

One of the significant trade policy changes over the past two years is the signing of the US and China Trade policy agreement. The agreement was signed in January 2020, requiring China to make structural and other changes in various trade areas (Cigna et al., 2020). The policy change affects financial systems, intellectual property regulations, agriculture, and foreign exchange. Also, China committed to enhancing purchases of US goods and services going forward. The policy change affected multinational companies, employees, and job candidates. One of the main effects recorded as a result of the implementation of the policy is the difficulty faced by multinational companies outside the US in hiring US talent (Cigna et al., 2020). Besides, the agreement made it difficult to transfer Chinese talent to the US. Since it is now difficult to transfer talent, corporations are relying on local R&D development and digitally available talent to improve the Chinese market.

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Protectionist Policies

Also, the Biden administration has refined tariff policies that make it difficult for international corporations to operate. It was expected that his administration would ease the huge tariffs imposed on imported goods, but that was not to be the case. The damaging effects of the tariffs policies include damaged local manufacturing, high prices for US consumers, and poor trade relations with China, US’s main trading partner (Cigna et al., 2020). The imposition of tariffs is part of the US’s silent protectionist policy aimed at protecting local businesses.

Economists’ Opinions on the Long-Term Effects of Trade and Tariff Policy Changes in the Last Two Years

The increased tariffs by the US had a damaging effect on its trade relationships. Most countries want to work with partners that have stable and predictable tariff policies. However, the case has been different in the US. The US uses tariffs as a negotiating tool and has been changing them on impulse to influence allies. That has led to the country becoming an undesirable trading partner that cannot compete effectively on the global stage. Another potential long-term effect of the US trade and tariff policies is that it has led to reduced trade and higher taxes for US businesses and consumers. One of the main concerns for imposing higher tariffs and protectionist policies was to protect American jobs. As a result, the US pulled out of free trade agreements with some countries. However, the decision has been mostly counterproductive. Some of the countries that the US severed relationships with are high-income countries that would not compete with the US for local jobs. For instance, the withdrawal from the Trans-Pacific Partnership (TPP) had counterproductive effects (Boustany, 2020). Members of the agreement were high-income countries such as Japan, Australia, Switzerland, and Singapore. Such countries are in the high-income status, thus unlikely to displace US labor. Severing trade relationships with these countries has given China, America’s biggest trade rival, the chance to bolster its sphere of influence. Besides, American consumers and businesses will pay more in taxes.

Also, the US’s recent decisions with regard to trade agreements have had a damaging effect on their interests. First was the withdrawal from the Trans-Pacific Trade Agreement. Besides, the formation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership without US participation is also notable. Third, the entry of the EU-Japan Economic Partnership has had damaging effects on the US. These agreements collectively made it less favorable for US agriculture and manufacturing to participate in global supply chains (Boustany, 2020). US multinationals now face stiff competition from other global rivals that enjoy the benefits of these agreements.

Impact of Recent Trade and Tariffs Policy Changes on Employers and Individual Households

US’s recent tariff changes have significantly impacted employers in many sectors that participate in export trade. For instance, the American Chemical Council (ACC) estimates that the US will lose about 55,000 jobs in the sector. The worst fears in the sector are retaliatory tariffs. Chemical factories export a significant amount of their products to China. China’s retaliatory tariffs will force these companies to adjust their workforce due to the declining revenue. Another major damaging impact has been felt in the apparel and footwear sector. Although the manufacturing of the final products for most companies occurs overseas, much work is done locally in the US. Retaliatory tariffs by other countries have made it difficult for US companies to implement expansion planning.

Another company impacted by the US’s recent protectionist trade and tariff wars is Ford Company. The automaker’s stocks have plunged significantly due to market losses in some countries. To stay in business, the company has had to restructure itself by laying off some of its employees (Chang, 2019). American workers are usually the first to get hit by the US’s toxic tariff policies. Particularly, tariffs on aluminum products have had the most impact on the company. The company reports indicate that it loses approximately $1 billion annually to tariffs. As the profits declined, Ford had no option but to lay off some of its employees.

References

Boustany, C. (2020). Challenges for U.S. Trade Policy in 2021: A Brief Look Ahead. The National Bureau of Asian Research (NBR). https://www.nbr.org/publication/challenges-for-u-s-trade-policy-in-2021-a-brief-look-ahead/

Chang, E. (2019). 14 Stocks Already Hurt by President Trump’s Tariffs. Www.kiplinger.com; Kiplingers Personal Finance. https://www.kiplinger.com/slideshow/investing/T052-S001-14-stocks-already-hurt-by-president-trump-tariffs/index.html

Cigna, S., Meinen, P., Schulte, P., & Steinhoff, N. (2020). Working Paper Series The impact of US tariffs against China on US imports: evidence for trade diversion? https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2503~ca71d98a53.en.pdf

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Week 6 – Signature Assignment – International Trade Summary

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

Consider the following:

• 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 2 academically credible sources.

Format your assignment according to APA guidelines.