Question

U.S. Comparative Advantage over China: ARTICLE

President Trump is trying to bring back manufacturing to the U.S. from China. How does this goal disrupt the free market and hurt American consumers? Where would American negotiators help trade more by opening Chinese markets (where do we have a comparative advantage? Who will his policy of bring manufacturing back to the U.S. help and who will it hurt? From this analysis, do you think President Trump is following politics or good economics?

Answer 1

Free markets do not have trade barriers. It helps countries to follow specialisation and optimum allocation of resources happen. Trade also offers an opportunity for developing countries to grow faster. Political animosity decreases with increase in trade.

When Trump promises to make America great again, mainly he focuses on USA based development and manufacture of  goods. It is clear that wages and infrastructure costs in USA are way higher than in China or India or any developing country. USA is already a developed state. If it does not allow access to foreign goods the other countries may reciprocate and USA made goods will not find markets there making US producers worse off in the long run. By declining cheaper imports, US consumer is already worse off. As cost of production increases, US based producers may hire less employees and unemployment might increase. World trade organisation might direct US to encourage free trade.

It is however true that many new jobs will be generated in USA with higher pay and USA growth rate will be more in the short run. Tax collection will be higher and USA debt burden might decrease. It is also true that USA goods will be expensive and may not be sold highly in other countries and in the long run it may make USA economy worse off.

Hence it is clear that free markets allocate resources efficiently. Donald Trump is more politically driven than economically in my opinion. USA is seen benefited but this policy will cause more problems as focus on technology and competitive advantage is better than protectionism.