Predictions of Economic Theory
Economic theory predicts the following result(s) after the imposition of the tariffs: The price of imported steel in the U.S., which before the tariffs was cheaper than domestically produced steel, is now more expensive relative to domestically produced steel. Depending on the pre-tariff imported steel price(s) in the U.S., the post-tariff imported steel price(s) in the U.S may or may not be higher than the U.S. domestic steel price(s), but it is probable that the tariffs were enacted in such a way that most imported steel would be more expensive than the same product produced domestically. In either case, however, the aggregate U.S. offer curve will shift (inward if concave up, outward if concave down), which results in an increase in the U.S.'s aggregate terms of trade and a decrease in Taiwan's aggregate terms of trade. Because imported steel is now more expensive (as a result of the tariffs), U.S. domestic steel producers will increase the price of their goods to a level just below the price of imported steel (so they are still less expensive than imported steel). The overall result is increased prices of steel in the U.S market. If the U.S. is considered a large country in terms of being a major importer of steel from Taiwan, then the domestic price of steel in Taiwan will decrease. If the U.S. is not a major imported of steel from Taiwan, then the domestic price of steel in Taiwan will remain unchanged. The volume of trade between the U.S. and Taiwan will also decrease, especially in steel (according to the offer curve diagram).The tariffs on imported steel have likely affected many agents within the U.S. economy. First, U.S. steel producers are benefiting greatly from the new tariffs, since their foreign competitors' goods are now more expensive for U.S. consumers. As a result, U.S. steel producers can increase production, increase prices or both. In any case, the lack of foreign competition caused by the tariffs is a boon to the U.S. steel industry, which has been battered by foreign competition over the last few decades. Steel workers (employed in the factories) also gain from the tariffs. As foreign producers were battering the U.S. steel industry, many U.S. steel factory workers lost their jobs. According to BBC News, major steel producers in the U.S. employed 2.4 million workers in 1974; today, fewer than 900,000 are employed in the industry (Arnold, 2002). The tariffs decrease the likelihood that more steel factory employees will lose their jobs since their employers, the U.S. steel producers, are experiencing a reprieve from the brutal foreign competition. U.S. businesses that consume steel, such as other manufacturers and construction firms, have been hurt by the steel tariffs. They must now pay a higher price for steel than they did before the tariffs, which increases their costs and decreases their profits. These companies have likely passed on their increased costs to consumers, who also pay more for consumer goods containing steel than they did before the tariffs. Additionally, as steel consuming businesses have been hurt by the increased prices, it is likely that some of the employees of these companies have lost their jobs. It is difficult to determine whether the U.S. has received an overall benefit from the tariffs, since the tariffs have a significant redistribution effect on welfare.
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