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Economic Analysis

The article is about the pressure being put on the United States by various countries to get rid of the expensive duties (tariffs1) that have been imposed by the US on imported steel goods. The other countries, such as Japan, Italy, and China, are saying that these tariffs are illegal according to the World Trade Organization (WTO), as they limit free international trade in favor of increasing domestic sales.

The lobbying by the other countries has had an effect on the WTO, as they recently ruled that the tariffs are indeed illegal and that the US should scrap them immediately to avoid retaliatory measures by the other countries. These will include tariffs set by the European Union (EU) anywhere from 8% to 30% on US$2.2 billion worth of imported American goods. The tariffed goods will include the citrus fruit, clothing, and motorcycles, all important parts of the American economy. The EU has been authorized by the WTO to impose tariffs totaling more than US$4 billion, which would be the largest number in WTO history.

Economic Analysis

US President George Bush’s motives for imposing these tariffs are obvious; they were put in place so that American consumers would shy away from the expensive dutied

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imported goods and buy the cheaper, non-tariffed US goods instead. Before the tariffs were imposed, the market for imported steel in America was at equilibrium, as in Fig. 1.

At equilibrium, the quantity demanded for imported steel is equal to the quantity supplied for imported steel at price PE (called the equilibrium price). In this situation, everyone who wants to purchase the good at price PE can get it and everyone who wants to sell the good at price PE can sell it. However, the tariffs have caused a higher price, and the quantity demanded will move from QE to QD, as in Fig. 2.

This will also result in a higher quantity supplied, as less people will by the steel when the price increases. As a result, there will be more supply than demand, or a surplus. This is clearly not desirable for the international producers who exported the steel to the US, as they will be left with unsold goods. If the US does not lower the tariffs, and the other countries retaliate with tariffs on products imported from the US, the same effect will take place on the US goods market in the other countries.

Evaluation

Obviously, President Bush is in a tight situation. If he does lower the tariffs on imported steel, like he is being told to by the WTO and other countries, he will lose votes in next year’s presidential election from major steel-producing states such as Pennsylvania and Ohio. However, if he does lower the tariffs, other countries will tax clothing, motorcycles, and citrus fruits, among other goods exported by the US, and Bush will lose votes in politically extremely important states like Florida, where citrus fruits are grown. The economy will also suffer because less people will buy American products. My opinion is that Bush should lower the taxes and risk one more term of presidency instead of international relations with important trading partners like Japan and China and risk increasing the national debt more than Bush already has. Tariffs – A list or system of duties imposed by a government on imported or exported goods.

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