Dr. Chala shares his topic summary and the key takeaway from his presentation at our 2017 International Business Conference.
Despite more than trillions of debt and billions of trade deficit, President Trump is threatening to impose a 35% and 45% tariff on imported goods and services from Mexico and China. In a country where more than 20% of its economy and 7% of employment opportunities are dependent on international trade, the impact of trade protection policy is undoubtedly substantial.
This study assumed that China and Mexico might make a symmetric or asymmetric reciprocal response if the Trump Administration implements a trade protection policy. Based on this assumption, a simulation analysis was created on the general equilibrium framework of the supply and demand side GDP of the US economy.
The result of this study indicates that a total and partial trade war may not be in favor of the US consumers, businesses, and government budget. The analysis shows that there may be a decline of household and government spending and business investment by 0.5 to 2%; a fall in individual income and business profits by 0.5 to 1.6%; a rise in the unemployment rate from 4.99 to 7.8%. In both scenarios, government deficit may worsen by 8 to 21%.
Therefore, if there is any trade protection policies planned against China and Mexico, It is wise to implement them after vigorously assessing the short and long-term impact on the US consumers and businesses and their contributions in reducing the US deficit and national debt.