Quotas and Tariffs Impact on Balance of Trade

By Dr. Antonio Graceffo

Tariffs and quotes have the effect of reducing imports of the specific products the are attached to. For example, a tariff or a quota on the import of Chinese washing machines will decrease the import of Chinese washing machines. The overall impact on the trade deficit, however, is zero. The value of US currency would go up, causing some other exports to decrease, while other imports increased, and the effect on net exports is zero.

Many economists cite this example as proof that we should not have tariffs on Chinese goods. But, if the US has tariffs on all Chinese imports, tariffs will decrease the income of the People’s Republic of China, which is strategically, an important decision to take. Additionally, the tariffs apply to all products made in China, including those manufactured by foreign companies in China. Consequently, even foreign companies would be forced to leave China, decreasing jobs and general economic activity in China.

#unemployment #manufacturing #industry #tradedeficit #budgetdeficit #trade #internationaltrade #tradewar #China #economics #freetrade