After conducting a hypothetical study of a trade war, experts at the University of Pennsylvania claim that a trade war could potentially wipe out the gains from the tax cuts offered by the Trump administration. So far the US has offered exceptions to Canada and Mexico to be exempted from tariffs temporarily. However, China and the European Union have already said that any tariffs imposed by the US are likely to be met with retaliation. The Trump administration seems to be pretty confident about the unlikelihood scenario of a trade war and is optimistic that even if there is such a situation "Trade wars are good and easy to win". Analysis indicates that this could cause losses to the economy of up to 200 billion dollars over the next 10 years and about 1.4 trillion dollars by the year 2040. Of course, this is just an analysis of a hypothetical situation, the results could be much worse than what is predicted.
http://money.cnn.com/2018/03/14/news/economy/trade-war-economic-cost/index.html
3 comments:
Given that this is a hypothetical, it is still no secret that a trade war would cause the prices in imported goods to increase. This study is correct in that the gains from the tax cuts will be wiped out because consumers will have to pay more for foreign items, cancelling out the benefits they once received. Even though a trade war is unlikely, this study brings to the forefront the idea of what could easily become reality if such a trade war were to occur.
I agree with the conducted study result and what the article is trying to tell in the long run. Imposing tariffs may be a short-term decision but it does hurt if a trade war occurs.
Plus, this is assuming all of the economic gains Republicans promised in the wake of the tax cuts actually materialize. The actual effect could be much worse.
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