Labour Govt and World Politics (SORRY THAT THIS DECK IS QUITE UNORGANISED)) Flashcards
Trumps TARIFFFFFFFFFFS
Universal Tariff: A 10% tariff on all imports from countries other than China, effective from April 5, 2025 .
Wikipedia
China-Specific Tariffs: An effective 145% tariff on Chinese imports, combining a 125% base tariff with an additional 20% “fentanyl tariff”
New York Post
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United Kingdom
Tariff Rate:
10% on most goods.
25% on cars, steel, and aluminum.
Negotiations: Discussions are ongoing to ease these tariffs, with the UK emphasizing the importance of maintaining high food safety standards.
Temporary Pause: A 90-day pause on new tariffs for most other countries, maintaining the 10% baseline during this period
Business Insider
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📉 Economic Implications
1.Consumer Prices: The high tariffs on Chinese goods are expected to lead to increased prices for U.S. consumers, particularly on electronics and other imported goods.
2.Trade Relations: These measures have intensified trade tensions between the U.S. and China, with China responding by increasing tariffs on U.S. goods to 125%
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3.Global Supply Chains: The escalation in tariffs may disrupt global supply chains, affecting industries reliant on Chinese imports.
4.Retaliatory Tariffs and Trade Wars
How: Targeted countries (e.g., China, EU, Canada) impose their own tariffs in response.
Result: ↓ exports → ↓ net trade → negative effect on AD and potential current account worsening.
Example: In April 2025, China responded with 125% tariffs on US goods → hit US farmers and manufacturers.
5.Reduced Consumer Welfare
How: Tariffs raise the price of imported goods (e.g., electronics, cars), leading to a fall in real incomes.
Application: In the US, 145% tariffs on Chinese goods in 2025 significantly raised consumer prices.
Elasticity angle: If demand for imports is inelastic (e.g., smartphones), consumers bear the burden → regressive impact on low-income households.
6.Cost-Push Inflation
How: ↑ import prices feed into overall inflation.
Policy Constraint: Limits central banks’ ability to cut interest rates.
US Example: In 2025, core inflation began to rise as tariffed imports (e.g., Chinese goods) became more expensive.
ELASTICITY OF US TARIFF REVENUE
“The revenue generated by U.S. tariffs can be considered relatively elastic in the long run due to the country’s dominant role in global trade. As higher tariffs increase prices on a wide range of imports, they may lead to significant changes in trading patterns, including import substitution, relocation of supply chains, or retaliation from other countries. This means that beyond a certain point, further increases in tariff rates may lead to proportionally lower import volumes, reducing total tariff revenue — a concept consistent with the Laffer curve applied to tariffs.”
💡 Why This Makes Sense
Short-run: Tariff revenue might appear inelastic — imports continue despite the tariff, so revenue rises.
Long-run: As tariffs stay high or rise (e.g. 145% on China), producers and consumers adjust behavior:
U.S. importers shift to alternative suppliers or domestic production.
Trading partners retaliate, reducing bilateral trade flows.
Global firms reorient supply chains to avoid tariffs.
This leads to a decline in import volumes, so even though the rate is higher, total revenue may fall → elastic response.
Labour govt welfare payments cuts
Labour Government Welfare Cuts (2025) – Overview
🔧 What’s Happening?
In March 2025, the Labour government announced £5 billion in welfare cuts, mainly:
Cutting the Universal Credit health component by 50% for disabled people.
Freezing it for new claimants until 2030.
Targeting long-term sick and unemployed people to push them into work.
This is part of a wider fiscal strategy to cut £6 billion from the benefits bill and maintain fiscal discipline (e.g., keeping debt/GDP stable).
(Source: The Guardian, Reuters)
💬 How to Explain It in A Level Terms
1. Supply-Side Economics
Aim: Improve incentives to work and reduce welfare dependency.
How: Cutting benefits may push some people back into the labour market.
Effect: Potential ↑ in labour supply, ↓ in natural rate of unemployment.
BUT…
If disabled or long-term ill people are forced into work without support, it can reduce productivity and increase long-term inequality.
Could lead to a misallocation of resources.
- Impact on Aggregate Demand (AD)
Short-term: ↓ Government spending (G) → ↓ AD.
↓ Disposable income for low-income households → ↓ consumption (C).
Could slow economic growth in the short run, especially if the economy is already weak.
- Inequality and Equity
These cuts disproportionately affect vulnerable groups (e.g., disabled people), which:
Increases relative poverty.
Could worsen income inequality.
Contradicts the Labour Party’s traditional redistributive values.
- Fiscal Policy Angle
Labour is trying to meet fiscal rules (keep debt falling as % of GDP).
So the cuts improve public finances, making room for spending in other areas (e.g., job creation programmes).
Could be seen as a form of fiscal consolidation.
Positives of the wwelfare cuts
- Reduces Budget Deficit Helps the government meet fiscal rules (e.g. keeping debt/GDP down). Cuts £5–6 billion in spending without raising taxes.
- Encourages Work (Incentive Effect) Reducing benefits may make employment more financially attractive, especially if supported by job programs. This aligns with supply-side labour market reforms.
- Frees up Money for Other Priorities Savings could be redirected to investment in education, health, or job creation — potentially more growth-enhancing than benefits.
- Tackles Welfare Dependency Reduces long-term reliance on welfare by nudging able claimants back into the workforce — linked to increasing labour force participation.
- Improves Efficiency of Public Spending Reducing payouts to those able to work can improve the cost-effectiveness of the welfare system.
Negatives of the welfare cuts
📌 Point ❌ Explanation
1. Increases Poverty and Inequality Affects vulnerable groups (e.g. disabled people, long-term sick), many of whom cannot work. Increases relative poverty and social exclusion.
2. Reduces Aggregate Demand Lower income → lower consumption → ↓ AD → especially problematic if the economy is already sluggish (multiplier effect).
3. Regressive Impact Poorer households have a higher marginal propensity to consume (MPC), so cutting their income has a stronger negative effect on the economy.
4. Risk of Misclassification People with genuine health conditions may be wrongly declared “fit to work”, creating stress, worsening health, and reducing productivity.
5. Political and Social Backlash Cuts could harm Labour’s political credibility and lead to protests or falling trust in government.
6. Short-Term Costs to the NHS or Social Services If more people fall into hardship, it increases pressure on public services like the NHS or housing, potentially offsetting fiscal savings.
7. Weakens Automatic Stabilisers In a downturn, welfare is meant to cushion demand. Cutting it makes the economy more vulnerable to future shocks.
8. Reduced Human Capital Accumulation Poverty may force people out of education or training, hurting long-term productivity and growth potential.
Positives of trumps tariffs
📌 Point ✅ Explanation
1. Protects Domestic Industries Tariffs raise import prices, helping U.S. industries (e.g. steel, manufacturing) compete — can preserve or create jobs.
2. Increases Government Revenue Projected to raise $171.6 billion, helping to reduce budget deficit or fund public investment.
3. Reduces Trade Deficit (in theory) Higher import costs discourage imports → could improve current account balance.
4. National Security & Strategic Autonomy Reduces reliance on adversarial countries like China for key goods (e.g. semiconductors, rare earths).
5. Political Leverage Tariffs act as a bargaining tool in trade negotiations, e.g. to push China to change IP laws or labor practices.
6. Encourages Domestic Investment Incentivises firms to “reshore” supply chains → potentially boosts long-run U.S. industrial capacity.
7. Short-Term Job Creation Some import-competing industries may hire more workers in response to reduced competition.
Negatives of trumps tariffs
📌 Point ❌ Explanation
1. Higher Prices for Consumers Tariffs increase the cost of imported goods (e.g. electronics, food, clothing), causing cost-push inflation. Regressive impact on low-income groups.
2. Retaliation from Trading Partners China imposed 125% tariffs on U.S. exports; Canada, Mexico, and the EU have all responded. This reduces U.S. exports → harming producers.
3. Global Supply Chain Disruption Tariffs affect components used in U.S. manufacturing → raises costs for domestic firms and reduces productivity.
4. Risk of Trade War Escalation Tit-for-tat tariffs damage global trade volumes and can cause economic uncertainty, hurting investment and confidence.
5. Reduces Efficiency (Welfare Loss) Resources diverted to protected but less efficient domestic firms. Tariffs cause deadweight loss → lower consumer and producer surplus.
6. Hurts Exporters and Farmers U.S. agricultural exports hit by Chinese and Mexican retaliation. Farmers are especially vulnerable.
7. Undermines WTO and Free Trade Agreements Raises questions over U.S. commitment to multilateral trade rules. Could weaken global trade cooperation.
8. May Be Politically Motivated, Not Economically Sound Short-term popularity may override long-term competitiveness, especially if tariffs are imposed without a targeted strategy.
