Protectionism: Effect of Tariff Wars on Economy

Protectionism: Effect of Tariff Wars on the Economy Name Institution Protectionism: Effect of Tariff Wars on the Economy The recent announcement by US President Donald Trump on plans to introduce a 25% tariff on steel from other nations and a 10 percent tariff on aluminum from outside the US reignited debate on the possible effect of tariff and trade wars on the US economy. Immediately after the announcement, the US dollar dropped sharply internationally sparking fears among investors on negative effect of Trump’s move on the economy. The numerous cases of trade wars over the years can be used to give a picture of what is likely to happen if the current tariff war goes on for a long time. As expected, the US steel and aluminum industry players are in support of the proposed tariff increases. Wherever protectionist tariffs are imposed on any product, they lead to an increase of the products being protected and in the current case, the prices of steel and aluminum products are expected to increase for the whole economy thus allowing the industry insiders to capture the surplus. According to research, while tariffs are good in theory, they are bad in practice since they benefit a small section at the expense of the wider economy. One of the negative things about protectionism tariff is that it creates a bias as it only protects the domestic producers at the expense of the foreign manufacturers. What this implies is that protectionist tariffs as the one proposed by the Trump administration favor local manufacturers, thus giving them undue advantage over their competitors at the international scene. An example of this is the scenario where tariffs on imported produced goods might be favorable for domestic US producer...