Trade Wars

Question 1

Effects on consumers

Answer 1

-Increase in price from tariffs

Question 2

Effects on sellers

Answer 2

• In some competitive markets, tariffs are absorbed by sellers, reducing profits
• reduction in consumption reduces profits

Question 3

Effect on producers

Answer 3

-Trade Diversion to others (China increased soy bean imports from Brazil, USA moved to more expensive trade with Mexico)

Question 4

Effect on trade balance and GVC

Answer 4

Leads to higher price and poorer quality, as imports from USA are tariffed by China, then assembled and exported to USA where they are tariffed by USA.

Question 5

The Effect of contagion and escalation

Answer 5

Reduced trade reduces GDP growth, which reduces demand, which reduces trade which reduces GDP growth, which reduces demand etc.

Question 6

Winning Trade Wars

Answer 6

In order to win a trade war the war should be quickly resolved and carried out with specific aims in mind; USA wants to limit dumping of products and remove FDI restrictions in China for example, while China wants to force access to high tech US markets.