Question

Answer the following questions as briefly and precisely as possible. (5 points each) 2. a. Trade war between China and the U.S. has been escalating in recent weeks. What are the main reasons for the trade war to start? Discuss at least two reasons. Which countries (and groups within a country) most likely support international labor standards? Explain why b. c. Explain why some countries prefer import quota instead of import tarif? Contrary to what trade theory predicts, some countries impose trade barriers like tariffs and quota. Discuss two reasons why these countries impose trade barriers. d.

Answer 1

a) The main reasons for the trade war between China and the US are:

1. An increasing trade deficit: The trade deficit on the US imposed by China has significantly increased from $375 billion in 2017 to $500 billion in 2018. The reason for this huge deficit is because the US is one of the largest importers of CHINA's goods and services. To reduce this huge deficit trump administration is imposing tariffs on goods made in China.

2. Chinese firms imitating US technologies and stealing American Intellectual property:  The Chinese firms have been continuously accused of stealing American technologies particularly mobile phones, disrupting the mobile phones markets in Asia by selling cheap duplicated versions of the same US manufactured mobiles gaining a huge market share and revenue thus hampering the profits of American Companies

3. Protectionism: TRUMP wants to boost the local industry of Aluminium and Steel by imposing restrictions on China's imports in the same category. He said that a 25% tariff on aluminum and 10% tariff on steel will be imposed. The American administration claims that the US depends too much on foreign countries for its metal, and as a result, they will not be able to make enough weapons and vehicles if a war should break out (Swanson, 2018). In other words, TRUMP wants to reduce dependency on Chinese products and expand its own production of aluminum and steel.

b) Most generally High-Income countries support International labor standards and the labor unions are the groups that support international labor laws. The reason for a high-income country supporting such standards is that in the low income or developing countries, the cost of production might increase if the labor laws are strictly followed. In such cases, the developing country might lose its comparative advantage on the product. Therefore, such laws are more generally followed by countries which are well off in the income department.

The reason why such laws are supported by labor unions or the working class is that they are the ones who get the direct benefits of such rules and regulations. More income and a better standard of living are added to their lives and this is the reasons why a labor union in a developed country demands the imposition of international labor laws very strongly.

c) An import quota is a restriction on the number of goods imported while an import tariff is a restriction on prices of goods. Both result in an increase in the cost of imported goods. The problem with the tariff is that when trading partners retaliate with their own tariffs it raises the cost of doing business which leads to a decrease in product quality. Thus quotas are preferred by countries that are not ready to negotiate on the quality of products

d) Trade barriers are imposed for the following reasons:

1. Protecting domestic employment: The import quotas or tariffs are sometimes imposed to protect the domestic producer from fierce international competition under which they might succumb. trade barriers increase the prices of domestically produced goods and help the domestic producer.

2. protecting Consumers: If a country feels that imported products are not good or defective and can cause harm to the consumers then it can impose tariffs to deter the incoming of such goods.

3. Retaliation: Sometimes the trade barriers are imposed as a reaction to the trade barrier imposed by the trading country. a recent example of this is US-China trade war.