Abstract
This study reviewed standard international trade theories as they pertain to the impact of trade restrictions. Current empirical studies were reviewed to see whether evidence supports trade theory predictions. Conventional price impacts in standard models of international trade show that trade restrictions are detrimental for trade for both countries involved, and the empirical evidence from current studies confirmed this. The current tit-for-tat tariff escalation between China and the United States has led to, among other things, increased domestic prices to both American consumers and producers; lower export prices to some of the Chinese exporters and American firms based in China; reduced import and export trade between the two countries that would lead to costly adjustments in supply chains; loss in net welfare and employment; and loss in competitive advantage to firms in both countries that produce for export. Therefore, efforts should be made to de-escalate these trade tensions.
Highlights
The United States and China are major trading partners to each other, China has always maintained a trade surplus in its trade with the United States
The United States has so far imposed various waves of tariffs on Chinese exports, based on its grievances on China that include unfair trade practices, the ever-growing trade surplus China has with the United States, stealing US intellectual properties due to ineffective enforcement of intellectual property rights, discriminatory innovative policies, and irregular implementation of its WTO obligations
Conventional Price Impacts: Theory on Impact of an Import Tariff in a Partial Equilibrium Setting The adjustment processes of relative prices in standard models of international trade are often used to show the effects of trade restrictions in a partial equilibrium analysis using a small country case or a large country case. Such models are used to try and present trade theory predictions, after which empirical evidence from work by various authors is presented to either refute or confirm theory predictions
Summary
The United States and China are major trading partners to each other, China has always maintained a trade surplus in its trade with the United States. The United States has so far imposed various waves of tariffs on Chinese exports, based on its grievances on China that include unfair trade practices, the ever-growing trade surplus China has with the United States, stealing US intellectual properties due to ineffective enforcement of intellectual property rights, discriminatory innovative policies, and irregular implementation of its WTO obligations. This study reviewed standard international trade theories as they pertain to the impact of trade restrictions with current empirical studies and reviewed to see whether evidence supports trade theory predictions. This was done to show the merits or lack thereof of standard international trade theories in explaining the welfare effects of protectionist trade policy in this trade war. A review of current empirical work by other researchers is done and presented to show whether the expected impacts as per trade theories have been realized
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