Overall Economic Implications of the Recent Policy-Free-Samples

Question: With reference to a piece of international/local news, an economics textbook or book, a government policy leaflet or an internet website, apply an economic theory that you have learnt in this course to the behavior, policy or phenomenon (at least one) mentioned in the news, textbook, book or internet website. Answer: The economy of a country as well as the overall global economic dynamics are considerably effected by the policy frameworks of the countries. With the increasing integration of the economies across the globe, owing to the phenomena like Globalization, Liberalization of the commercial sectors of the economies across the world and technological and infrastructural innovations, trade and commerce linkages have developed significantly among different countries, thereby having considerable implications on the productive, industrial as well as the overall economic wellbeing of the countries specifically and of the world as a whole. However, inter country trading activities may have positive as well as negative implications on the trading economies. On the positive side, while it gives rise to an overall cost effectiveness, efficiency and increase in the global production of different goods and services, on the negative sides, the import export activities often threaten the domestic industries to some extent. Keeping this into consideration, the essay tries to discuss the implications of the recent policy of increasing import tariff on steel and aluminium in the USA, as has been signed by the President of the country in March, 2018, on the overall economy of the country, taking reference of the news article titled 3 More Ways You May Not Realize That Tariffs Will Hurt Jobs, published in Forbes on March 6, 2018 (Sherman, 2018). The concerned article by Erik Sherman, tries to discuss the overall economic implications of the recent policy taken by the government of the USA. Under the framework of the said policy, the government has imposed 25% import tariff on steel and 10% on the aluminium resources which are imported by the country from all the trading partner countries except Canada and Mexico. The main objective, as has been stated by the President of the United States of America, behind the implication of such a restricted trade policy, has been the agenda of the government of the country to protect the domestic producers of steel and aluminium, who have been facing immense competition from the other global producers of steel and aluminium, in terms of competitive efficiency and price of the products. These specifically had threatened the jobs in the metal producing industries in Pennsylvania and the iron mining industry in Minnesota. However, the impacts of the increased import tariff policy, though may be to some extent positive for the concerned industry operating in the domestic framework, may have greater and more serious long term negative implications on the overall economic scenario of the country, which can be explained with the help of the pivotal concepts of price elasticity of demand of goods and services and that of production cost in economic theories. In terms of economic theories, the concept of price elasticity of demand refers to the degree of responsiveness of the demand of any kind of commodity or service, due to a unit change in the price levels of the commodity itself or of the related commodities or services ("Essential Foundations of Economics", 2018). On the other hand, in economics, the cost of production of any goods or services considerably depend on the price of the inputs required for the same, which in turn reflects towards the efficiency and competitiveness in the production process of the commodities. In this context, as argues by the concerned article, there remains 80 jobs in different companies in the USA, using steel or aluminium in their production to every single job in those companies in the country which manufacture steel or aluminium. This indicates towards the fact that steel and aluminium are heavily used as raw materials for the production of different commodities in the country itself and an increase in the import tariff of the same leading to an increase in the price, is expected to contribute significantly in increasing the cost of production of those companies, thereby decreasing their supply (Baumol Blinder, 2015). Figure 1: Decrease in supply (Source: As created by the author) As can be seen from the above figure, this decrease in supply is expected to increase the price of the final products. Most of the products produced in the country, using steel as raw materials, are mainly vehicles, electronics and others, of which many can be categorised under luxury goods or goods which are not of absolute necessity, thereby having higher price elasticity of demand. This, with the increase in the price may force the consumers to opt for the commodities produced by foreign producers, thereby hampering the local producers significantly (Bown Crowley, 2014). To avoid this the local producers may also outsource their manufacturing activities to other countries with lower trade and productive restrictions, in which case, the employment sectors of the country is going to be affected adversely. Thus, from the above discussion, it can be asserted, with the help of the economic concepts of price elasticity of demand and cost of production, that the import restricting policy, taken by the USA to boost up the domestic producers of steel and aluminium, may actually lead to a greater production crunch in the economy as a whole, which may lead to shifting of customers preferences as well as outsourcing of manufacturing activities of the local producers, thereby affecting the productivity and employment generation in the economy adversely in the long run. References Baumol, W. J., Blinder, A. S. (2015).Microeconomics: Principles and policy. Cengage Learning. Bown, C. P., Crowley, M. A. (2014). Emerging economies, trade policy, and macroeconomic shocks.Journal of Development Economics,111, 261-273. Essential Foundations of Economics. (2018).Kamiyacentral.weebly.com. Retrieved 19 March 2018, from https://kamiyacentral.weebly.com/uploads/1/3/4/4/13446949/essential_foundations_of_economics_-_ch_1-7.pdf Sherman, E. (2018).3 More Ways You May Not Realize That Tariffs Will Hurt Jobs.Forbes.com. Retrieved 19 March 2018, from https://www.forbes.com/sites/eriksherman/2018/03/06/3-more-ways-you-may-not-realize-that-tariffs-will-hurt-jobs/#6912148e6d9a