BUSI 605 Week 2 Group DB Forum 2 Example

Group Discussion Board Forum 2: Trade Theory and Trade Policy

BUSI 605 Environment of International Business, Group Discussion Board Forum 2 (thread and 2 replies)

Thread by [Student Name]

The forum question and the two classmates' threads are composites standing in for the course's own; the research and Scripture cited are real, and the requirements follow Liberty's public course guide for BUSI 605.

Thread

Research on the tariffs the United States imposed in 2018 and 2019 suggests that Americans paid for them. Amiti et al. (2019) examined import prices for the goods subject to the new tariffs and found that the prices American importers paid, including the tariff, rose by nearly the full amount of the duty. Put simply, the overseas sellers kept charging what they had charged before, and the duty landed on top. The cost was passed to American firms that import goods and, through them, to their customers.

Fajgelbaum et al. (2020) estimated the broader effects. They found that the tariffs, together with the retaliatory tariffs that other countries imposed on American exports, reduced real income for consumers and firms who buy imports by more than they increased revenue for the government and income for protected producers, leaving a modest net loss for the economy as a whole. Retaliation fell heavily on agricultural counties, whose exports lost access to foreign markets.

A tariff is a tax, and the research shows it is paid mostly by the people in the country that imposes it. That does not settle whether tariffs are wise, since governments may accept economic costs for strategic reasons, such as reducing dependence on a rival for critical goods. But it changes how a business should plan. An American importer facing a new tariff should not assume the foreign supplier will share the cost; it should model the full duty in its prices and margins and look for alternative suppliers in countries not covered. Proverbs 11:1 values honest measures in trade, and honest analysis of who bears a policy's costs is part of that integrity.

Reply to Rachel

Rachel, your thread explained comparative advantage clearly, and your example of the United States and Vietnam trading aircraft parts for apparel showed why both countries gain when each specializes. I would add one qualification to your conclusion that trade benefits everyone. Modern research shows that the gains come through a process that creates winners and losers within each country, even within the same industry.

Melitz (2003) built a model in which firms differ in productivity. When a country opens to trade, the most productive firms expand into export markets, less productive firms shrink or exit, and resources shift toward the better firms. That reallocation raises average productivity and national income, but it does so by closing weaker firms. Bernard et al. (2007) documented the pattern in U.S. data: exporting is rare, concentrated among a small share of firms that are larger, more productive and pay higher wages than nonexporters, and the bulk of export value comes from a few very large firms.

Put together, these findings support your point that trade raises total income while explaining why trade remains politically contested. The gains are spread widely across consumers and concentrated among productive firms, while the costs are concentrated among workers at firms that shrink. For a business, the implication is that trade liberalization is an opportunity for firms able to compete abroad and a threat to those that cannot. Do you think trade policy should include support for workers at firms that lose out, and if so, who should pay for it? The answer affects how businesses that benefit from trade are viewed in the communities around them.

Reply to Tyler

Tyler, your thread argued that tariffs on Chinese goods are needed to protect American manufacturing jobs. The strongest evidence for your concern comes from Autor et al. (2013), who studied local labor markets across the United States and found that areas more exposed to rising imports from China between 1990 and 2007 saw factory employment fall further, wages weaken and residents depend more heavily on government transfer programs such as disability and unemployment benefits. The adjustment was slow; many workers did not move to other jobs or regions. That research changed how economists view the costs of trade and gives real weight to your argument.

The question is whether tariffs now can reverse those losses. The evidence from the recent tariffs is not encouraging. Studies of the 2018 and 2019 tariffs found that their costs fell largely on American buyers and that retaliation hurt American exporters, which suggests that tariffs can impose new costs without restoring the jobs lost earlier. Many of the manufacturing jobs lost to import competition are unlikely to return in the same form, partly because automation has changed how goods are made.

A middle position might focus on helping the communities that were hurt, through retraining, support for new local industries and help for workers to move to growing regions, rather than on broad tariffs whose costs fall on the whole economy. Targeted protection for a few critical industries, such as semiconductors or medical supplies, might be justified on security grounds. Would you support limiting tariffs to industries with clear national security importance, and how would you keep that category from expanding to cover every industry that asks for protection?

References

Amiti, M., Redding, S. J., & Weinstein, D. E. (2019). The impact of the 2018 tariffs on prices and welfare. Journal of Economic Perspectives, 33(4), 187-210. https://doi.org/10.1257/jep.33.4.187

Autor, D. H., Dorn, D., & Hanson, G. H. (2013). The China syndrome: Local labor market effects of import competition in the United States. American Economic Review, 103(6), 2121-2168. https://doi.org/10.1257/aer.103.6.2121

Bernard, A. B., Jensen, J. B., Redding, S. J., & Schott, P. K. (2007). Firms in international trade. Journal of Economic Perspectives, 21(3), 105-130. https://doi.org/10.1257/jep.21.3.105

Fajgelbaum, P. D., Goldberg, P. K., Kennedy, P. J., & Khandelwal, A. K. (2020). The return to protectionism. The Quarterly Journal of Economics, 135(1), 1-55. https://doi.org/10.1093/qje/qjz036

Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695-1725. https://doi.org/10.1111/1468-0262.00467