Answer to Question #290311 in Macroeconomics for REE

Question

a) “The United States is refusing to resume trade negotiations with China until Beijing comes up with a proposal to address Washington’s complaints about forces technology transfers and other economic issues. Trump administration plan to increase tariffs on US200 billions of Chinese imports to 25% on January 2019, from 10% in December 2018.”

i) Discuss the impact of the trade war to the international trade between China and the United States. (8 Marks)

ii) Provide three benefits of the trade war to Malaysian economy. Focus the answers on the macro perspective. (12 Marks)

b) However, in the November 3, 2020 election, Donald Trump lost to Democratic Party candidate Joe Biden. Analyze the possible changes for the president of the United States to the Malaysian economy. (5 marks)

Answer 1

i) Discuss the impact of the trade war on the international trade between China and the United States. (8 Marks)

Pros

·        Protects domestic companies from unfair competition. Trade wars aid in the protection of struggling home businesses against foreign competition and unfair practices like dumping and foreign government subsidies.

·        Increases demand domestic goods. Due to low imports as a result of tariffs imposed, consumers are left with no choice but to utilize the local goods.

·        Promotes local job growth. As industries try to match the increased demands, the citizens are employed.

·        Improves trade deficits. When fewer goods are imported, the country is able to achieve a balance of trade.

·        Punishes nation with unethical trade policies. Chana is able to receive the punishment due to reduced export.

 

Cons

·        Increases costs and induces inflation. Import costs rise as a result of tariffs imposed during a trade war. Domestic producers are not compelled to lower their prices as a result of increasing competition, and domestic consumers pay higher prices as a result. With increase cost of living, inflation sets in.

·        Causes marketplace shortages, reduce choice. Due to the reduced amount of goods in a country, there is a shortage and less choice for consumers.

·        Discourages trade. When a tariff is applied due to a trade war, the traders of the two countries suffer and thus reduce their trading.

·        Slows economic growth. With the high cost of living, economic growth is slowed.

·        Hurts diplomatic relations, cultural exchange. Diplomatic relation is affected negatively when there are trade wars between the two countries.

ii) Provide three benefits of the trade war to the Malaysian economy. Focus the answers on the macro perspective. (12 Marks)

1.     There is an increase in exports to the USA after china’s goods are blocked.

2.     There are increased employment opportunities in Malaysia due to the increased production of goods exported to the USA.

3.     Trade and diplomatic ties between Malaysia and USA improve.

b) However, in the November 3, 2020 election, Donald Trump lost to Democratic Party candidate Joe Biden. Analyze the possible changes for the president of the United States to the Malaysian economy. (5 marks)

If present Biden allow the importation of China goods to the US, the Malaysian economy might suffer. The Malaysians may start losing jobs again due to the reduced production of goods that were supposed to be exported to the US. Also, there will be a reduction in trade between the two countries because the china goods to the US will replace the Malaysians goods. The Malaysian economy might grow slowly again due to the reduced production of goods to the US.