By Cindy Xinrui Zhang
Donald Trump has proposed to impose a 45% tariff on China and a 35% tariff on
Mexico. This is not a beneficial strategy to improve United State’s economy. Instead, the high tariff will damage the domestic economy.
When the tariffs are imposed, prices for domestic goods and imported goods will both increase. Domestic producers of cars and electronics will be better off as the domestic price increases; however, domestic consumers will be worse off. As a result, the domestic economy is worse off and there will be a deadweight loss in the economy. When the tariffs are added, domestic goods will be more attractive and domestic producers will benefit. However, there are not many domestic producers who produce substitutes of products that are imported from China. Therefore, consumers must decide between buying more expensive goods or not buying at all.
If this becomes a reality, China and Mexico will eventually stop trading with the United States due to the extremely high tariff. Since Mexico is America’s third largest trading partner and China exports a lot of goods that United States does not produce domestically, this will hurt the United States’ economy significantly. In the long term, China and Mexico might do the same to United States. In addition to these effects, producers in the United States will rely heavily on government and lose incentives to improve.
