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President Trump of America imposed tariff on Steel and
Aluminum of 25% and 10% respectively. The tariff reached as far as countries
like Canada, Mexico and EU. The only countries which were safe from the tariff
were Argentina and Australia. He claimed that it is to done to protect American
economy. He felt threatened by the oversupply of Aluminum and Steel from China,
it affects the producers of aluminum and steel in USA. After the announcement
Brazil, Australia, South Korea and Argentina agreed upon American terms. A
temporary deduction on income was granted to Canada, Mexico and EU and the
deadline exceeded a month. In 2016, Trump said that free trade with North
America is the worst deal signed in the history. It allows benefits of others
to put before your own. So on Nov 21, 2016 another strategy of putting America
first came to the surface through a video message of Trump.
It seems like Trump and his administration are sure about
breaking compromise with the trade partners across the globe. According to the
President cheap imports cause an effect on jobs of USA workers and affect the
US industry. On his campaign he looked determine to start the trade war; he
said trade wars are good and easy to win. Mexico, EU and Canada have said to
take appropriate action against it. But on statistics of America the main
target is China and the deal is pretty clear with them.
USA has reduced tax and provided relief on imports to four
countries under Trump’s presidency. Australian Prime Minister succeeded to
obtain exemption from President Trump as he claimed that they are his partners
in battle and has $40 billion trade amount and provide steel like no other.
China complained about steel and aluminum tariffs of USA in WTO in April, 2018.
The same case was opened by EU in June, 2018. It is surveyed by economists that
increase in tariff of steel and aluminum will not bring greater benefits and
will proceed to harm rather than good. Increase in cost of steel will affect
the workers working in steel industries and consumers as well. It is estimated
through a study that 146,000 jobs can be lost just because of this tariff. Job
losses can cross the figure if other countries begin to put their own tariffs
on American goods.
The administration and experts have warned Trump about the
tactic that is used by Trump that other countries can do the same. WTO allows
countries to take appropriate steps to protect and secure their own economy and
products. But in case of USA this has been wrongly used and has harmed American
allies and not enemies. As the main target of this tariff was China, but USA
imports very small amount of steel and aluminum from China. 2/3 of steel in
America is produced by its own industries. 45 associations of trade warned
Trump to not impose such tariffs on China as it can be harmful for the American
consumers and economy.
In America some people were in support of tariff while some
were against it. The labor union and democrats supported the decision of tariff
while Republicans expressed fear saying that it can harm American economy. A
poll conducted by Quinnipiac University revealed that 29% of Americans were in
favor of the tariff of 29% steel and 10% aluminum.
The tariff cost $3.2 billion a year to Canadian economy. The
cost is high because Canada is the biggest supplier of steel and aluminum of
US. More than 90% of Canadian steel is exported to US. This tariff takes away
the benefit of free trade. If 25% tariff is paid to US it will dramatically
decline the trade and steel industry of Canada. The demand of Canadian steel
will decrease and it will result in loss of jobs. 84% of Canadian aluminum is
exported to US. 2/3 of America’s aluminum is from Canada. The tariff will
result in rise in prices of machinery, appliances, vehicle, electrical
equipment and furniture. This can result in 8,300 losses of jobs in aluminum
sector.
In a report it was concluded that Canada would lose $3.2
billion every year which can result in loss of exports in US if the tariff
remains in consideration and play. The loss is five times greater than the loss
of China. In 2017, Canada exported steel and aluminum to US of worth $24.1
billion. Trump defended the tariff on Canada by calling Canada security threat
to American economy. The Prime Minister of Canada called this approach absurd
and said that these tariffs are not acceptable by Canadian economy and Canada
can never be a threat to America in any way. And he claimed that the USA is not
using their sense and thus the government is not headed in right direction.
From July 1st, Canada imposed tariffs on American products in intention to match
the tariff that of US. And US will pay same amount of tariff in Canada as
Canada will pay in US.
Response from Mexico
The response from Mexico was no different from Canada and
tariff of $50 billion was implemented on US goods. The tariff is applicable on
long list of exported US products.
Response from china
China claimed that the country will answer the tariff in the
same way. China limited the import of US goods.
Response from European Union
The implication of US tariff was greatly condemned by the
President of EU, Jean Claude Junker. He claimed that the legal challenge from
WTO will follow. Once the tariff was bought in practice the EU filed the
challenge at WTO.
Effect on market
In 2017 Mexico, Canada and EU combined exported steel and
aluminum of $23 billion to US while nearly $48 billion of steel and aluminum
was imported. After the introduction of Trump’s tariff in market the US
companies came up with high prices of steel and claimed that producers in US do
not have ability to meet the growing demand now. Economists and companies of US
claimed that the high cost of metal will result in loss of jobs and expensive
household equipment. Rise in inflation was calculated by Goldman Sachs in
March. Trump was stubborn about his decision and did not show any concern about
effect on trade. Steel producers of US gained shares in trade while the
companies that depend upon metals faced decline in shares.
The producers of UK are greatly worried that it can reduce
the demand of steel from US. The UK steel industry will get affected and
disrupted if such thing happens. The steel industry of UK exports 7% of steel
to US and employs 31,000 people.
Republicans who mostly agree with everything Trump do but
they did not support the tariff and it was widely criticized in America by
economists, law makers and businesses. The Aluminum Association of America also
criticized the tariff as it will greatly affect the allies and trade with them.
Application of national competitive advantage theory on us
economy
The theory of national competitive advantage was given by
Michael Porter. The theory suggests that factors of a country are very
important for an organization to gain success in international market. This
theory has four interconnected vital factors therefore it is known as diamond
theory. The four factors are such which contribute to the success of a country.
The tariff presented by Trump produced a wave of
restlessness among American economy and allied countries. A faction of American
economy was supportive towards the tariff while some strongly opposed as it
will harm the economy of the country directly and indirectly as well. All the
finished products of steel such as pipes and stainless steel and all aluminum
products such as wires, rods, bars, cans, foils etc. would be affected.
Production Factor
It possesses the items which are necessary for production of
certain good or service in a country. Such factors include labor force,
advanced technology and natural resources. If a country has it all it can
succeed in global market. Somehow there are some countries which possess such
technologies but lack the elements like strategic planning, good marketing and
management this is why they cannot make any progress in the economic market.
With the tariff introduced in US market it can greatly harm
economy of US. 0.2% of US population works in steel industry i.e. 300,000
workers (according to report of 2016). The output of steel industry is the
input of automotive and machinery manufacturing. It is thought by the
economists that this tariff can affect 0.25% of GDP and high prices of
materials required for the production of goods can result in decrease of
domestic productions as well as export. It concludes that this tariff can put
US economy behind.
Condition of Demand
It connects with the demand of certain service or product
within country. If the demand of the product is more in country it helps in
greater and improved production of the product. Greater quality improves the
liability and thus value and demand increases. If the product is in high demand
within country then the demand of product can increase in foreign market as
well.
The tariff directly affects the US economy; it will leave a
strong impact on steel and aluminum industry of US. Price, production and
demand by steel and aluminum industry could increase. The industries which use
steel and aluminum as raw materials will require greater labor force for
improved and increased production. The tariff can cause reduction of metals by
5% but at the same time metal production of US can increase up to 15%. For
domestic producers the production cost can increase too resulting in higher
prices.
Supportive or Connected Industries
This area includes the leading producer of particular
product within country. The industry provides innovative designs which can help
low cost production for the country. If one industry grows it can positively
affect the other connected industry. If there is growth in automobile industry
it can influence or increase the growth in steel industry.
When the prices of production will increase, the domestic
producers of the products will need labors from other industries to work for
them and in such conditions labors will demand a premium. The premium can cause
inefficient use of resources leading to productivity rate to decrease up to 3%.
Structure, Strategy and Competition of an Organization
It differs from one country to another. These three elements
play important role in prosperity of an industry. It helps to set new
achievement goals, the structure helps to have better management program, and
competition helps to produce innovative items.
It is said that the tariff is introduced to protect the
steel and aluminum industry of the US from foreign competitors. The foreign
competitors include Canada, Mexico, China and EU. Canada is largest supplier of
aluminum of US with 42%. China is the largest supplier of aluminum with 11%. EU
is the largest importer of steel in US with 20%. But if tariff is imposed in US it will
greatly affect the prosperity of the country, it can harm the economy because
the countries will replay with applying same tariff on US exports.
Impact of this decision on nato agreement
Nato agreement
NATO stands for North Atlantic Treaty Organization and
involves countries from two continents. It was created in 1949. This
organization includes membership of Albania, Bulgaria, Belgium, Canada,
Croatia, Czech Republic, Denmark, France, Estonia, Greece, Germany, Hungary,
Iceland, Italy, Latvia, Lithuania, Luxembourg, Montenegro, Netherlands, Norway,
Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Turkey, UK and USA. The
aim of NATO is to provide security and freedom to its members by both military
and political means. All the decisions taken by NATO are collective.
NATO is the greatest alliance between countries of two
continents. The NATO is dedicated maintenance of peace and continue to form
military alliance.
Impact of tariff on nato agreement
US came up with steel and aluminum tariff which the allies
of USA wanted to negotiate upon. Trump has criticized allied of the country for
unsatisfactory defense contribution to NATO. So the president has taken his
criticism under consideration and will make sure that European countries fund
the NATO enough. Trump applied tariff of 25% on steel and 10% on aluminum and
only two countries got option of renegotiation and are allowed for free trade.
Other countries that seek exemptions will talk through route of US Trade
Representatives. An advisor of Bush’s administration said that this tariff is
inappropriate as the military allies will ask to be excluded from the list of
countries on which tariff is applicable. They will ignore the President’s
outlook of protecting steel and aluminum mills. As national security is prime
issue of Trump’s administration, application of tax can be hard on Australia
and South Korea. The reasons for exemption of Canada and Mexico are specific.
The Senator asked for a detailed report that how this tariff will influence the
economy, employment and security issues of the nation.
When Trump brought his tariff to surface, EU threatened the
nation by saying that they will challenge the tariff in WTO in alliance with
other partners of trade in order to stand against the presented US tariff. The
trade commissioner of EU, Cecilia Malmstrom said that they have made a list of
US products that will experience higher tariffs in Europe if Trump does not
take back his decision. The justification of Trump over tariff was questioned
as he claimed to have the tariff due to increased national security risks by
the aid of Section 232.
This tariff has potential to initiate a trade war. EU
presented the steps they are going to follow and Canada said they will answer
the tariff by putting same tactics in practice. The European Commissioner
President Jean Claude Junker suggested that Europe has to take actions against
the Trump’s tariff. As he said that it is the one way transatlantic action from
US. Some claimed that tariff of Trump is solely to have an impact on European
countries.
References of Trade and investment
Amaro,
S., 2018. EU threatens tariffs on US products like peanut butter as trade war
escalates. [Online]
Available at: https://www.cnbc.com/2018/03/07/eu-reveals-proposed-steps-against-trumps-metal-tariffs.html
Americafirstpolicies.org, 2018. K-12 Education Reform. [Online]
Available at: https://www.americafirstpolicies.org/issues/trade-deals-for-/
Anon., 2018. Trump administration recommends steep tariffs
on steel and aluminum. [Online]
Available at: http://freedomwat.ch/2018/02/19/trump-administration-recommends-steep-tariffs-on-steel-and-aluminum/
Bbc.com, 2018. US tariffs: Steel and aluminium levies
slapped on key allies. [Online]
Available at: https://www.bbc.com/news/world-us-canada-44320221
Bls.gov, 2018. Proposed steel and aluminum tariffs: U.S. GDP
gets a trim. [Online]
Available at: https://www.bls.gov/opub/mlr/2018/beyond-bls/proposed-steel-and-aluminum-tariffs-us-gdp-gets-a-trim.htm
Dangerfield, K., 2018. What U.S. steel, aluminum tariffs
mean for Canadians — and their wallets. [Online]
Available at: https://globalnews.ca/news/4244395/aluminum-steel-tariffs-canadians/
Isidore, C., 2018. Why steel and aluminum tariffs matter to
the U.S. economy. [Online]
Available at: https://money.cnn.com/2018/02/19/news/economy/steel-aluminum-us-economy/index.html
Scrapprofessional.com, 2018. Import tariffs imposed on steel
and aluminium - What could happen?. [Online]
Available at: https://www.scrapprofessional.com/single-post/2018/06/07/Import-tariffs-imposed-on-steel-and-aluminium---What-could-happen
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