Question

"A current policy proposal concerning tariffs and supply chains is Trump’s administration aiming to remove global industrial supply chains from China as they weigh new tariffs against China to ‘punish’ them for their handling of the coronavirus. Trump wants the U.S. to stop depending on supply from China. As discussed in the lecture, China exports to the U.S. because of its ability to have a large supply of goods. This can be a result of there being less regulation in their country, prices being low, and lower cost of moving goods. The U.S. receives many of its goods from China and Trump wants to move manufacturing back to the United States and other countries he approves of. The U.S. has had discussions with other countries excluding China, on restructuring supply chains to avoid a situation like this again- the fallout of Covid-19 and its detrimental effects on businesses globally that rely on China for their goods. China has a key role in the supply chain for many essential items and the fallout of Covid-19 emphasized the dangers of not having diversification in supply chains. Tariffs on Chinese goods benefit the government collecting the taxes and promotes domestic production, but it hurts consumers as it will make the price of the goods more expensive for them."

Question: What does this do to the markets? (in the context of trade) What does it act like in terms of the conditions that increase or decrease trade?

Answer 1

Question SOLUHON Question seeks to address two key impacts on markets : Due to taiffs on chinese goods-on trade and & Shifting supply chalus ou the consumption impact of tauiffs on Chinese goods ( imports & morsets) Price ($) -Domestic - supply A DWL Domestic Gout venel Quantity or goods U O SWL X OWL - Supply of China ofta tacist Foreign supply of China Doud ó - Qe Qi Neuadd 22 23 Initially before tariffs, Us was producing ooo of goods domestically and importing Qo Q3 from China as to Batiste total domestie consumption demand of QoQz . Now us imposes tauffs ou Chinese goods impacts as a result of which Chinese supply cuve shifts up. This leads to an increase in doustic peduction in ve bu QQ amount while imports from cluua falls. The consumer demand shinks to oQ, due. to higher pele of goods as a result of tauiff te (op, > Opo): . This also generates a reveum of lana A) as revenu for us gout from levied tariffs ou Chinese goods. o Overall, international trade volume falls, domestic production rises while consumer demand shrinks. This also creates an economic inefficiency a dead weight loss given by shaded area. Impact of Shifting business out of China a Diversification of supply chairy or trade i - This can help in trade creation as well as trade diversion o Trade creation for those economies which would start producing goods which well earlier imported from China a Trade Diversion for those chinese firms which were earlier supplying to us towards other economies. The impact on trade re increase or decrease would debende on valious other factors such as cost of production peices of goods supplied a quality standards fulfilled etc caule nou Scanned with CamScanner Scanned with CamScanner