US / China Trade War – Could this be the beginning? | Economics in Plain English

Oct 07 2010

US / China Trade War – Could this be the beginning?

This post was originally published on September 15, 2009. It is being reposted today for my year 2 IB Econ students, who are studying free trade and protectionism as part of Unit 4 of the IB Econ course.

US president Barack Obama made a speech directly to Wall Street today. In his speech, Obama reflected on the many lessons America has learned in the last year since the financial crisis began. He urged his audience of investors, bankers and brokers that

“Normalcy cannot lead to complacency,” Obama said. “Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we are still recovering, they are choosing to ignore them.”

“They do so not just at their own peril, but at our nation’s,” the president added.

In addition to his warnings about the threat posed by overly risky financial markets to the US economy, President Obama expressed his commitment to free trade and “the fight against protectionism”.

Obama says:

…enforcing trade agreements is part and parcel of maintaining an open and free trading system.

The enforcement of existing trade agreements Obama refers to is his way of justifying a decision his administration made over the weekend that actually limits free trade between America and one of its largest trading partners, China.

Trade relations between two of the world’s biggest economies deteriorated after Barack Obama, US president, signed an order late on Friday to impose a new duty of 35 per cent on Chinese tyre imports on top of an existing 4 per cent tariff.

In his first big test on world trade since taking office in January, Mr Obama sided with America’s trade unions, which have complained that a “surge” in imports of Chinese-made tyres had caused 7,000 job losses among US factory workers.

So, in his speech today, Obama decries protectionism and calls for expanded trade and free trade agreements which are “absolutely essential to our economic future”. But only three days ago, he supported a blatantly protectionist measure aimed at keeping foreign produced goods out of America in order to save a few thousand American jobs.

Obama’s decision is a bad one for several reasons. As an economics teacher, I will turn firstly to a diagram for an illustration of the net loss to the American people of higher tariffs on imported tires:
Tire protection

The key point to notice in the above graph is that a tariff on imported tires results in a net loss of welfare in America. The blue area represents the increase in the welfare of tire manufactures (this could be interpreted as the jobs saved in the tire industry and the profits earned due to higher prices); the black areas, on the other hand, are welfare loss. Since all tire consumers in America pay more for their tires due to the 35% tariff, real income is affected negatively for the nation as a whole.

One effect of the protectionist policy the graph does not illustrate, and perhaps the most serious negative impact of the tariff on America, is the response the Chinese are likely to take to what they interpret as a violation of existing free trade agreements between the US and China.

“This is a grave act of trade protectionism,” Mr Chen said in a statement. “Not only does it violate WTO rules, it contravenes commitments the US government made at the [April] G20 financial summit.”

Beijing said it had requested WTO-sanctioned consultations with the US over Washington’s new duties on tyres. Yao Jian, a commerce ministry spokesman, said the duties were in ”violation of WTO rules”.

China said it would now investigate imports of US poultry and vehicles, responding to complaints from domestic companies.

The problems with protectionism are myriad. Clearly American consumers suffer through higher tire prices. In addition, Chinese manufacturers will see sales fall as their product becomes less competitive in the US market. According to the CCTV report below, as many as 9,000 workers in the Chinese tire industry will lose their livelihoods due to declining demand from the US. But the unforseen effects of the US tariff on Chinese tires is the retaliatory measures China will almost certainly take. If China imposes new tariffs on American automobiles and poultry, the scenario in the graph above will be reversed, and Chinese consumers will face higher prices, Chinese car and poultry producers will experience rising sales, while the American auto worker and chicken farmer will suffer.

Free trade tends to result in net benefits for economies that choose to participate in it. American tire manufacturers are certainly harmed by cheap Chinese imports; however, America as a whole benefits through cheaper goods, more consumer surplus, higher incomes in China and therefore greater demand for imports of products made in America. The road to protectionism is a dangerous path to take for the Obama administration. Justifying these new tariffs by claiming that they “enforce existing free trade agreements” is a political maneuver aimed at covering up the truth, which is that the Obama administration has sided with a special interest group to save a few thousand jobs and garner political favor at a time when 700,000 American jobs are being lost each month. By doing so, he is calling into question his own commitment to free trade, and harming America’s image as a global proponent of global economic integration.

Discussion Questions:

  1. Why is the Chinese government so upset about a new tax on such an insignificant product as automobile tires?
  2. “Self-sufficiency is the road to poverty”: Do you agree?
  3. Some would say that it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. Would you agree? Why or why not?
  4. If 7,000 Americans were to lose their jobs due to free trade with China, what would we call the type of unemployment experienced by these workers? Is this the same type of unemployment experienced by the 700,000 workers who have lost their jobs each month during the last year of recession in the United States?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

33 responses so far

33 Responses to “US / China Trade War – Could this be the beginning?”

  1. Melvinon 22 Sep 2009 at 10:56 pm

    1. The Chinese Government will be upset should there be a new tariff imposed on anything; be it insignificant products like tires, because this affects their people as well as their economy. The term insignificant product should not be used because, any product so long as demand is present will bring about profit for the companies who produce them, jobs for the people who work there and satisfy the consumers who demands them. By having these 3 situations, unemployment will decrease, export for the country will increase (thus reducing the possibility of having a deficit in their balance of payments), aggregate demand will increase due to increase in disposable income of their people (thus leading to more spending and consumption = Increase in aggregate demand) and increasing the GDP of the country. Thus, by imposing the new tariffs, all of these will be lost. Also, unnecessary inflation will occur and therefore increases the standards of living for the locals.

    2. I agree with that statement. An autarky country will face a lot of problems both in the short term and in the long term. Trade occurs between 2 different countries; near or far from the importing country because one of the two is more efficient (or has the proper skills as well as resources) in producing an item compared to the other. This relates to the comparative advantage theory; of which the opportunity cost for a country is lower than compared to another country of which is producing the same item. Therefore, should a country practice self-sufficiency, the country will face a major increase in opportunity cost. Examples of countries who moved from trading to being self-sufficient (in a way) would be Myanmar (Burma). Myanmar used to be a country that is developing quite well under the British influence. However, after they decide to incorporate a central planned economy, their country went into a downward spiral. Unemployment is high, standard of living is low and annual GDP of Myanmar is low. This is because a country simply isn't able to produce and provide everything for their locals.

    3. I disagree. Should there be new tariffs imposed on a country, not only will there be benefits, but drawbacks will also be present. In this case; international relations, consumer surplus, locals (both in America and China) and producers are among the stakeholders that will all be affected by this move. Instead of increasing the tariffs; of which will decrease consumer surplus, affect diplomatic relationships between China and America, as well as cause unemployment in China, they should create jobs for their locals (Americans) via the increase in government spending; i.e. on new projects such as building new hospitals, increase in government subsidies for small ~ medium businesses. Rather than imposing tariffs; of which the effects will be unsustainable, they (the government of the US) should invest in long-term projects. Using the example mentioned before; increase in government subsidies for small ~ medium businesses, they can help local producers expand; of which will trigger the multiplier effect. Larger business requires more workers, of which reduces unemployment, increases standard of living for the locals, increase in disposable income of the workers, which leads to increase in consumer spending, which leads to aggregate demand, which leads to increase in GDP, and ultimately economic growth (ceteris paribus). This step is a much safer choice compared to increasing the tariffs merely to get results in the short-run.

    4. That type of unemployment will be classified as a cyclical unemployment, with a hint of frictional unemployment. Because they have the skills to do the tire making job, but not the skills to do; for example a bar-tending job. Cyclical in the sense that the economy is not at a good point; due to diplomatic relations between the US and China relating to both economies. As for the loss of 700,000 jobs, it is just cyclical. Firms are not willing to hire more people as well as workers who requests for their usual pay (before the recession occurred). Thus the economy affects the rate of unemployment, making it a cyclical unemployment.

  2. Paul Bieseon 05 Sep 2010 at 9:50 pm

    1. Because they (China and US) have agreed on rules of free trade and once the US government started imposing a tariff on tires, they could extend it to other products as well. Also US is a big market for Chinese tyres and the tariff might result in 7 000 Chinese tire workers becoming unemployed. Also a tariff on Chinese products will result in tariff on American products entering the Chinese markets which will result in both economies being worse off as the real disposable income of producers becomes lower as they are the ones that in the end have to pay the price for the tariffs due to higher prices.

    2. I do not agree that self-sufficiency is the road to poverty but it certainly limits the economics growth and the potential output of an economy as recourses are allocated inefficiently, e.g. agricultural products are produced where the weather is not beneficial, or industrial products are being produced by producers who don't have know-how of how to make industrial products. Though it being self-sufficient doesn't mean it will lead to poverty and almost all nations are self-sufficient in some strategic industries, such as energy and communication.

    3. I would disagree. The use of tariffs is only a short-term solution and it limits the American companies willingness to develop more cost-effective methods of producing tires. Also the tire market isn’t just any market as America has been regarded as a nation on wheels and a 30 % increase in the price of tires will affect the consumers’ real disposable income. Also because the Chinese producers are able to sell fewer tires, the Chinese demand for American products will decrease which might cause a much bigger unemployment than the original 7000. In general exposing firms for intense competition will lead to the best and most efficient use of resources, which will benefit both the American and the Chinese economies as a whole.

    4. The type of unemployment the tire workers would face is called structural unemployment as the geographic location of the jobs moves from America to China. This type of unemployment can be decreased by training the workers to other jobs or lowering benefits so that it would be cheaper for firms to hire, but this type of unemployment tends to be the most serious as it takes a long time to deal with it. It is not the same type of unemployment that has been caused by the recent recession, which is called a cyclical unemployment due to fluctuations in the total output of an economy. That type of unemployment will decrease once the economy starts to grow again.

  3. Arthur Weion 05 Sep 2010 at 10:46 pm

    1. The Chinese government is unset about this new tax imposition on the imports as it, tariffs will minimize the exports of tires from China to US. (As the diagram explained the quantity imported will decrease from Q1-Q4 to Q2-Q3.) This will also affect the China's no. of unemployment increasing as firms' profits decreases. As the result, there will be occurrence of inflation in China's market as the aggregate demand decreases.

    2. I also agree with this statement :“Self-sufficiency is the road to poverty”. Since trade have the benefits of achieve economies of scale in production, and on the other hand, allows countries to acquire needed resources with higher variety and quality of goods and services, trade will produce greater efficiency in production and economic growth. Then, it's believed that trade is the engine for growth. Thus, think this notion oppositely, the self-sufficiency will then promote poverty instead of economic growth or development.

    3. I agree with this statement only in the short term measure as it seems higher prices for purchasing tires may not be a huge deal to save 7000 American's jobs. And further, the standard of living for these 7000 American will improve. Nevertheless, in the long-term measure, this will probably have negative effect on the relationship of exports between China and America as I said mentioned just now, the imposition of tariffs will affect China's AD, no. of unemployment…ect in the Market.

  4. Chris Holtskogon 05 Sep 2010 at 11:50 pm

    1) The Chinese Government is upset about the new tax on insignificant products like automobile tires because this harms China’s economy and its people. When there is a tariff imposed on imports of automobile tires, demand for automobile tires will decrease and this will increase unemployment from the exporting sector, which in this case is China. China’s unemployment rate will increase leading to loss of jobs, which will also lead to lower disposable income. Export for China will also decrease, All these factors will cause the GDP of China to decrease.

    2) There is reason why trade is such a popular method in allocating resources efficiently and gaining a successful economic growth. When a country is attempting to be self-sufficient, it is going to affect them in the long run negatively. When 2 countries trade, they trade goods and products that the country can produce and allocated resources efficiently and reduce their opportunity cost. This can be linked to comparative advantage theory. However, when a country is going to execute in being self-sufficient, the opportunity cost for that country would start developing more. In addition, the country will start misallocating resources inefficiently, which is a massive disadvantage and the most important to take into consideration. The country won’t be able to produce and provide everything for their people and this will cause the standard of living (HDI) and GDP to become low. This will cause a road to poverty, so yes I do agree with that.

    3) I don’t think it is a small price to pay for Americans. There are numerous consequences being involved, even though it has its benefits. The trading relationship between America and China are in stake now, in addition with consumers and producers from both areas and the society as a whole. I don’t think Obama should have increased tariffs on imports as it may affect the trading relationships between China and America, as well it causes a lot of damage for China’s economy, especially in the unemployment side. Instead of increasing tariffs, American governments could have used their own revenue (government spending) to help the business expand and create more firms or even services such as hospital and create more available jobs for the Americans. This will lead to a less unemployment rate as if there are more jobs available. With more jobs available, this will lead to an increase in supply of goods and services, increase in disposable income of the workers, increase welfare, basically all the important elements that will guide economic growth to the positive direction. This alternative is clearly the safer route to pick as it will increase GDP and there are less consequences being faced. In addition, the relationship between American and China will be solid.

    4) If 7,000 Americans were to lose their jobs due to free trade with China, the unemployment type will be classified as cyclical unemployment and a little of frictional. It is cyclical because there would be a downturn in the business cycle. There will be a decline in aggregate demand so it is also known as demand deficient unemployment. As aggregate demand for tires decreases in America since they demand for imported tires instead, domestic producers will be unemployed because firms lay off workers who are no longer needed so they are fired or the employer went out of business. It will be short-term. However, for the 700,000 workers who have lost their jobs each month during the last year of recession, the unemployment type is still cyclical as there was a recession because of AD being decreased which lead to a decreased GDP. However, it will be long-term compared to the ones who were to lose their jobs due to free trade.

  5. Ruixin Maon 06 Sep 2010 at 5:51 pm

    1.

    The Chinese government is so upset about the new tax on tires because it would lead to many negative effects for the Chinese economy while saving a few thousand of jobs in US.

    The tariff would increase the cost of production due to the higher tax. This leads to a higher price for the tires exported to US, which will be less competitive with US’s domestic goods. As a result of higher price, the amount of tires exported will be reduced leading to the reduction in both demand and supply.

    This will cause a reduction in real GDP, as GDP=Consumer spending + government spending + investigation + net export. The tariff cause the reduction in net exports as export for China has reduced. There will be a reduction in job opportunities in China’s tire market as the production in decreased resulting the increase of unemployment. Around 100 thousands Chinese tire workers are estimated to be unemployed. This leads to a reduction labour as well as reduction in consumer spending as they don’t have an income. Thus, GDP will decrease as a result of reduced consumer spending and net exports.

    So, in conclusion, I think the Chinese government is upset for the new tax on tires because it causes the reduction in GDP and unemployment.

    2.

    No, I don’t agree. Self-sufficiency means the needs for the country is all produced with in their own country. However, it will have many disadvantages. For example, some country are more efficient in production of some goods compare to other due to climate, natural environment, technology and geographic location etc. Where as some are not efficient. Thus, if USA wants to produce palm oil needed all by themselves, it will very inefficient causing miss allocation of resources and high opportunity costs. And this may lead to higher price of goods and services. As well as if the country does no import from other countries, they would have less choice of goods.

    Therefore, I don’t agree with “self sufficiency is the road to poverty”.

    3.

    No, I don’t agree. Because the increased price for tires can cause many changes. For example, as the Chinese cheap tires are less completive due to the tax, resulting the consumers need to purchase the higher priced tires. Due to the higher price, it could lead to reduced consumer spending in other goods. These jobs are saved under the condition that the consumers are worse off. As well as the problem of misallocation of resources due to deadweight loss will occur, which benefits neither American, nor Chinese.

    Also, according to the article, there was “700,000 American jobs are being lost each month”. Thus, I think saving 7,000 American jobs in tire industry is really not worse all those negative impacts along with it. Thus, I do agree with it.

    4.

    It is the structural unemployment, as the labours demanded in tires market are permanently dropped if there no government interventions in it. This is because of demand is transferred to Chinese labour market in production of tires as the cost is much cheaper. So their unemployment tends to be long term, because they tend to be lack the occupational mobility to change jobs and geographic mobility.

    They are different compare to the 700,000 workers lost their jobs each month. That was considered as frictional unemployment. They will often be short terms. As in an economic crisis, the firms cannot afford to hire as much people as normally; so many people will be unemployment. However, as the economy is getting better, they will move on to other jobs or be hired again.

  6. Daniel Moonon 07 Sep 2010 at 2:48 am

    1. The Chinese government is upset about the new tax attributed to two main reasons, at least in my opinion. First, the new tax imposed on Chinese automobile tires will lead to a large drop in the demand for Chinese tires in the US. That means a significant decline in revenue for Chinese tires exporters, who are selling at the same world price. More importantly, the fall in overseas demand will reduce the production activity in China, which could lead to higher unemployment, particularly at the time when economies of the world and China are still recovering from the global financial crisis. Second, the move by the US contravenes commitments the US government made at the G20 financial summit, while China is still holding onto its respective commitments.

    2. I do not agree. A self-sufficiency model will not lead a country to poverty, but it will significantly reduce the opportunity and pace in which the standard of livings in the country could improve. In sum, a country with a self-sufficiency country will fall behind its peers in terms of economic development.

    In contrast, opened economy will acquire significant economic benefits from trade. First, by importing, consumers will get to enjoy cheaper prices, better quality and greater choice of products, which the country has lack of the comparative advantage to produce. Second, by exporting, the country can be involved in overseas market for products that it has the comparative advantage in production. Both suggest an increase in consumption and production, higher employment and standard of livings, attributed to more efficient allocation of resource globally. Moreover, free trade will also lead to the transfer of knowledge and technology, which will support a rise in productivity locally.

    3.

    I do not agree. First, China is likely to reiterate with harsh protectionist measures against US automobile firms and farmers. This could lead to even more than 7,000 Americans to lose their jobs. Against with the situation of gloomy economy for the US, overseas demand would help to ease further downside risks to growth in the US. Second, the new tax on Chinese tires will increase the market price of tires in the US. This suggests higher costs of living or less discretionary income for the US consumers. Remarkably, consumption is a key of the growth for the US economy. Thus, a fall in discretionary income will further reduce consumption spending. This will, in the end, affect a consumption deleveraging process in the US now.

    4. The type of unemployment due to free trade with China is called ‘structural unemployment’. Such unemployment is caused by long-term changes in demand and supply factors affecting specific industries. For example, weaken comparative advantage of US tires manufacturers relative to that of Chinese result in the price gap between price of tire in US and Chinese. This causes a fall in the demand for US in the US.

    No. The type of unemployment experienced during the recent recession in the US is called ‘cyclical unemployment’, different from ‘structural unemployment’. The term ‘cyclical unemployment’ refers to the unemployment caused by the business cycle, or more specifically a recession when economic suffers.

  7. HanJong Shin(Jeremy)on 07 Sep 2010 at 1:33 pm

    1. Why is the Chinese government so upset about a new tax on such an insignificant product as automobile tires?

    In My opinion Chinese government so upset about a new tax of automobile tires. Which means it decrease the Chinese tire producers revenue. Because as the increase the tax in the tire the tire supply will decrease. As that results it increase the China's unemployment rates. Unfortunately increase the tax which drives that decrease in GDP in Chinese government.

    2. “Self-sufficiency is the road to poverty”: Do you agree?

    I agree that with that self-sufficiency is the road to poverty. The thing is if it is not why the country did trade or exports and imports? Because the trade give wealth of country. Some of country get wealth by only trading. Even country does not have any resources trade makes people to survive. Such as Singapore or Hong Kong it achieve wealth by trade or treats with other countries. Therefore I agree with self-sufficiency is the road to poverty.

    3. Some would say that it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. Would you agree? Why or why not?

    I disagree that. It saves 7,000 American's job. Because increase the price it drives to change a lot. Shortly it would like to fit. However for a long period it would not like to fit. fit at all. Because for a long period it would affect to other trades or goods. Unemployment is affected by all other factors.

    4. If 7,000 Americans were to lose their jobs due to free trade with China, what would we call the type of unemployment experienced by these workers? Is this the same type of unemployment experienced by the 700,000 workers who have lost their jobs each month during the last year of recession in the United States?

    It might be called structural employment. Because it is miss matching between sufficiently skilled workers seeking employment and demand in the unemployment. Either the things will affect by the long period.

  8. Andrew Bolton 11 Sep 2010 at 2:14 pm

    1. The Chinese government is so upset about the tariff imposed on auto-tires, because it will have a negative effect on their economy. The first is that it will cause a decrease in demand for Chinese auto-tires in America, which result in a ripple effect in which chinese workers will lose there jobs. Also China is upset because this tariff goes against what they talked about in the G-20 meetings and is in direct violation of the WTO trade rules.

    2. I agree with this statement partially as self-sufficiency will cause many of the advantages of free trade, such as cheaper prices for larger quantities, to not be availble for the consumers. If a country is self-sufficient it would need to be able to produce all the goods and services demanded by its consumers, since no country can do this, no country can be seen as self-sufficient. BUt if a country tried to be self-sufficient it would have drawbacks such a mis-allocation of resources and high oppurtunity cost but it would not lead a country into poverty.

    3. I agree it sounds like a small price to pay, but due to Chinas retaliation of proposing to put tariffs on poultry and automobiles, it will cause a tariff war, that will have destructive effects on both the Chinese and American economy. With this proposed tariff in placed, not only will more Americans lose jobs, but due to the tire tariff it will also be more expensive for them to buy goods, causing negative drawbacks on an already unstable economy.

    4. This type of unemployment is structural unemployment and is caused by the jobs moving from America to China, causing a loss of jobs. This type of unemployment is different then the unemployment cause by the recession, which is cyclical unemployment, which is caused by flucatuations in the economy and will change once the economy becomes better, while the structural unemployment would not unless the tireworkers were trained into new jobs.

  9. Sanguk Kimon 12 Sep 2010 at 2:12 am

    1. Chinese government is so upset about a new tax on such insignificant product as automobile tires because there might be significant decrease in the demand of tires from China, a phenomenon that clearly leads to the loss of Chinese tire industry due to declining demand from the U.S. As, U.S government set the tariffs on the tires, it is likely that consumers suffer through higher tire prices as there aren’t enough supplies of cheap tires from China. The another reason that Chinese government is so upset is that tariff obviously neglects and be oblivious of the free trade agreements between U.S and China. According to Mr Chen, “Not only does it violate WTO rules, it contravenes commitments the US government made at the [April] G20 financial summit.”

    2. I do not agree to “Self-sufficiency is the road to poverty”.

    Apparently, it seems clear that free trade provides the a lot of chance for consumers to get the products by cheaper price. In another word, since free trade is the absence of government intervention of any kind in international trade so that trade takes place without any restrictions (or barriers) between firms in different countries, imports from other countries ensures consumers to get the products easily while damaging the domestic firms. However, self-sufficiency, which country survive and satisfy within its own product, can be effective and practical as it performs and benefits only domestic firms and products. Thus, consumers only get the domesticated products, which means that it is impossible that consumer’s expenditure goes to the abroad.

    3. I do not agree that it is a small price to save 7,000 American’s jobs. The reason is that this action contains the harsh and foreseen impacts in both China and America. Firstly, there can be more loss of jobs in the industry of America. If China imposes new tariffs on American automobiles as same as American did it to China, it might lead more than 7,000 loss of jobs in America. What it means that demands for America’s automobiles and poultry might be significantly decreasing, which reflects the fewer exports of American goods into China. Accordingly, more and more workers might lose their jobs in the industry as the company might not need to produce the as much as goods before. Furthermore, this kind of action directly affects the allocation of consumption. Since the expenditure of American consumers go a lot into the tires, they can’t use much money into other parts.

    4. The former type of unemployment, loss of 7,000 jobs due to free trade with China, is a form of the structural unemployment. It occurs when there is a permanent fall in demand for particular type of labor. Thus, it means that jobs are created in one part of the country, while the unemployed are living in another part of the country. Accordingly, structural unemployment directly applies to the situation of loss of 7,000 jobs. As America lost 7,000 jobs due to the cheaper imports from the China, there were more jobs creating in China for fulfilling the demand from America, while the domestic firms and workers in America lost their jobs and living due to the influx of cheaper imports.

    It is not the same type of unemployment experienced by the 700,00 workers who have lost their jobs due to the recession. This kind of unemployment is called cyclical unemployment, which means that unemployment in society is caused by the business cycle.

  10. Biansy Subiantoon 12 Sep 2010 at 2:37 am

    1. The Chinese Government is so upset in Obama's decision of imposing duty or tax of 35% on insignificant product, which is tyre imported from China. This decision seems to only benefits one party, which is the American economy and gives disadvantages to the China economy. Protectionism will save 7,000 tyre workers in the US but then it will cause 9,000 people who work in the tire industry. As we all know, the unemployment rate of a country can affect the economy. If China's unemployment rate increases, then it means that the consumer spending goes down. Since, tires that are made in China has a great demand, then it hits hardly on the exporting section. This means there will be a great reduction on the net export in China. Both of these will cause a decrease in China's GDP. In addition, the chinese government feel that the US broke the aggrement that has been made during the G20. Basically, i believe that the imposed tariff on tires has made the Chinese government upset since it will make the unemployment rate in China increases and affect the GDP as well.

    2. Self-sufficiency means that a country does not need any external helps or support. In this case, it means that a country that has this ideology (its often called as an autarky country) does not do any international trade and it also often produces all the needs within the country. I agree with this statement that says, “Self-sufficiency is the road to poverty”. Some resources arent able in some places due to economic, political, technological, environmental and weather factors that is why countries choose to trade. Trading gives lot of benefits to each countries that are participating in the trading only if the agreements are right and there are limit to it.

    3. I disagree with it since i believe that there are more consequences of this decision than its benefit. It does save 7,000 workers but then it will affect on other people, especially the consumer surplus. If there is an increase in the price of tires, the customers who are relaying in this product will have less power to buy another products, which can lessen the GDP. This also can affect the relationship between China and the US because this decision only benefits the US economy but not Chinese economy. I believe that there is another option or decision that Obama can choose to reduce the number of unemployment instead of by imposing tariff on insignificant products. For example, the US government can just subsidies local businesses.

    4. This type of unemployment is called as structural unemployment since in this case, the labour market cant provide jobs for everyone. This is different to the type of unemployment experienced the 700,000 workers who have lost their jobs each months during the crisis in the US, because it is called and cyclical unemployment. It is cyclical because it is affected based on the economy in the US.

  11. Jakeb Stunzon 12 Sep 2010 at 4:14 pm

    1. China is angry at the tax on such an insignificant product such as tires, because it affects their economy, due to it being a withdrawal from the economy in the form of an import payment. If we look at how many cars there are in China, as well as people, that is 4 tires per car… a very "significant" amount of tires and money withdrawn from the Chinese Economy.

    2. Yes because nations are meant to be interdependent on each other, buying and selling products around the world, uniting the world in some shape and form. A country cannot make it on its own resources because of the simple term, scarcity. Sometime you can't make it on your own, and when you try to, the country will be negatively effected.

    3. As an American, it would not be a large price to pay for the middle to upper class… whereas the lower class will still have to pay the extra amount for a tire, and sometimes it just isn't worth the cash due to the opportunity cost. Tires are not necessities and neither are cars, so for most Americans, the price is small to save 7,000 jobs. But on a side note, 7,000 jobs is not that greatly significant to the economy either.

    4. The unemployment for these American workers would be called Demand Deficient unemployment because as the free trade rises with China, the demand for jobs in the USA will fall, because producers are not as much relying on these employees.

  12. Asuka Shirakion 12 Sep 2010 at 9:36 pm

    1. The Chinese government is clearly upset about the new tax on automobile tires as it violates the existing free trade agreements between the US and China, and further violates WTO rules. The new imposition of tax on tires will only benefit the US, and China will alternately be negatively affected by this ‘protectionist measure’. As shown in the diagram, after the tariff was imposed, the quantity of tires imported to the US decreases from Q4 – Q1 to Q3 – Q2. Therefore this leads to a decline in profits for Chinese manufacturers, as less will be exported. Furthermore this causes unemployment to increase, which then leads to a decline in aggregate demand, as consumers will have less disposable income. As a result, the Chinese economy will experience a decline in GDP.

    2. I agree with the statement ‘Self-sufficiency is the road to poverty’, because it complies with what international trade and interdependency is all about. A self-sufficient country is a country that is able to meet the demands of its economy without any external support. However, there is no country that is able to survive on its own resources without experiencing poverty. Thus trade is introduced to prevent such negative circumstance. Economic, technological, political and environmental factors can determine the resources that can be produced in a country, and so the comparative advantage theory comes into the picture where one country will be able to produce a good at a lower opportunity cost than another country.

    3. I agree, and think that it is a small price since tires (which are needed for cars) are not necessarily necessities, as only the people with high incomes will own a car. However to some extent, and especially in the long-term I disagree with the statement because imposing the tariff has certainly upset the Chinese economy. As a result, the Chinese government is planning on retaliating by reversing the scenario on US poultry and vehicles coming into China. This will then further increase unemployment and thus the GDP of the US economy is likely to decline. Therefore it may be more of a larger price since President Obama is looking at the economic ‘future’.

    4. I think the type of unemployment experienced with the free trade is demand-deficient/cyclical unemployment. Since, the demand for cheap imported tires from China increases, the demand for locally (US) produced tires will decrease. Therefore, there is not enough demand to employ all those who want to work. I think it was the same type of unemployment during the recession, because the decline in aggregate demand leads to the same situation.

  13. Einar Lon 13 Sep 2010 at 12:14 am

    1. The Chinese government is upset as the tariffs imposed on tires by the US goes against the rules of free trade and it harms the Chinese economy. The tariffs is a withdrawal from the economy and will minimize the tire export to the US as the demand decreases. Also, unemployment in China will increase due to the decrease in demand for tires.

    2. I agree with the statement ‘Self-sufficiency is the road to poverty’, because a country can't produce all goods needed efficiently, either because of lack of manpower or scarcity of resources needed to produce the goods. If a country tries to be self-sufficient the consumers in the economy wont be able to enjoy the benefits of trade like lower prices and larger quantities.

    3. I disagree with this statement as I believe it will only benefit the US in the short term. The increase in price on tires might be a hard hit to the economy of the consumers within the low-income group who are dependent on cars and therefor also tires. Also, in the long-term, it will have a negative effect upon the relationship between the US and China.

    4. The type of unemployment suffered by the 7000 Americans loosing their jobs due to free trade would be structural unemployment as the Chinese keep their jobs on the expense of the Americans. The type of unemployment experienced during the recession would be cyclical unemployment, as the unemployment will decrease when the economy recovers.

  14. Younho Junon 13 Sep 2010 at 12:02 pm

    1. Why is the Chinese government so upset about a new tax on such an insignificant product as automobile tires?

    Chinese government is so upset about a new tax on automobile tires because tariff will decrease the consumption of tires, and it will lead to decrease in producers revenue. Thus, this decrease in producers revenue will lead to unemployment in China while US government can earn revenue from the tariffs.

    2. “Self-sufficiency is the road to poverty”: Do you agree?

    I agree that with that self-sufficiency is the road to poverty. Firstly, without trade, the country cannot boost their economy due to lack of resources such as land, people, etc. Also, when a country produce goods, they specialize on one thing. This means, a country try to specialize on every products, it will ruin the productivity. While when countries trade, they can earn benefits from trading scarce resources and specialized products.

    3. Some would say that it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. Would you agree? Why or why not?

    I disagree with this statement. When Americans can get jobs from the tire industry, it will disturb the tire industry in China which will lead to unemployment in China. Tariffs can benefit local industries by protecting local industries from exports. However, it only benefits US economy by boosting their tire industry, but creates unemployment in China's economy.

    4. If 7,000 Americans were to lose their jobs due to free trade with China, what would we call the type of unemployment experienced by these workers? Is this the same type of unemployment experienced by the 700,000 workers who have lost their jobs each month during the last year of recession in the United States?

    It is a structural unemployment because the firms in US cannot create the firms for 7,000 workers. Because of free-trade, local firms will be affected negatively, therefore, it is a structural unemployment. It is different from the last year's unemployment, which is cyclical unemployment because the unemployment in affected by recession.

  15. Eujin Jungon 13 Sep 2010 at 12:17 pm

    1. New tax on automobile upset the government of China because as it is against to free trade agreements between the US and China, and further rules of WTO. According the the diagram, after the tariff was imposed, the Q of tires imported decreases from Q4-Q2. This cause unemployment to increase, then fall in AD in the future.

    2. I agree with the statement. Trade have the benefits of economies of scale in production and also it allows countries to have the resources with cheaper price and better quality that are not able to found in their countries.

    3. I disagree with the results it bring in long term. In the long term, imposing tariff has certainly upset the Chinese economy. As a result, Chinese government is planning on retaliating by US vehicles coming to China. This will increase unemployment and AD and GDP of the US is likely to decrease.

    4. Demand-deficient/cyclical unemployment. As the demand for cheap imported tires from China increases, the demand from local produced tires will decrease. As a result, there is not enough demand to employ unemployed.

  16. Amirul "Rully&qon 13 Sep 2010 at 12:24 pm

    1. I believe that the Chinese government has the right to be upset because in the end, it was Obama who encouraged the world to free trade for the world with an open economy. In terms of economics theory, China will suffer the most because it means instead of having the unemployment in the US, as indicated by a possibility of 700,000 workers unemployed, it instead will affect the unemployment rate in China, therefore the unemployment rate will increase and cause such an impact towards China's economy. It may also means, politically, that Obama cintrdict with his own policy of free trade, even worse, he encourage other countries like china to do the same. But for the sake of 700,000 workers that loses their jobs every month and for political sake, it may seem that roughly Obama is a "hypocrite".

    But more importantly however, the benefits that the customers in America will get. the benefits for both producers and customers are not equally shared. Instead, by president Obama enforcing the policy, the producers will receive the benefits of not having to lose their jobs. For customers however, it means that they need to pay slightly more for the same quality of tires that they get. As a result, it will definitely affect their spending on income and may affect the whole economy cycle as consumer spending will be reduced due to the higher price available.

    2. I do not agree as a whole. Yes at some point that it may seem that a self sufficient country will benefit domestic producers due to domestic producers uses its own resources, however, there is nothing perfect in this world, and so are countries. There are certain areas of countries that they are lacking, as well as areas that some countries are specialized the most. Therefore, being "Self-sufficiency is the road to poverty" may have been well represented due to trade will cover areas that a country may lacking their specialization upon, providing a much better services for the population as well as preventing a country to turn into its poverty state

    3. At some point, it may be a small price for higher income population as well as people who don't use cars frequently. However, if using cars for people become a necessity, it is important to reconsider that a small price that American consumer needs to pay as an exchange for higher tire prices will need to be reconsidered. If they require to use cars and change tires very frequently, that means that a family with low income with all of those requirements will suffer because a higher tire prices will cause an extra burden and will give more incentive to spend than to save. Therefore, I do not agree that it is a small price to pay because it is evident that certain society or people will find that a higher tire price will create an impact on their income spending

    4. As of the unemployment for 700,000 workers for each month during recession, I would consider it as Demand deficient unemployment or cyclical unemployment because it occurs when an economy is in decline. According to business cycle, this unemployment occurs during an economy experiencing recession. As of the 7,000 workers unemployed due to free trade agreement, I believe that this is very similar to the unemployment during recession, because as there is more demand for China's product, less demand will be received for domestic product, causing Demand deficiency unemployment.

  17. Richard Tantyo Putraon 13 Sep 2010 at 12:24 pm

    1. The chinese government so upset about a new tax on such an insignificant product as automobile tires because there will be significant decrease in demand of tires from China. Then, there will be a lot of loss of China's tire industry after US government tariffs on the tires which China exports to US. The other reason is because of the tariff. The tariff has been ignoring the free trade agreements between USA and China.

    2. I agree with the statement "Self-sufficiency is the road to poverty”, because it appropriate with international trade. A self sufficiency country means that a country is able to produce all goods and services to meet the demands of its economy, and does not need any external help or support. However, there is no self-sufficiency country in this world which can produce anything. A country will not have some resources due to political, technological, economical, environmental and weather factor. So, in order to survive, a country have to trade with other countries. Trading gives lot of benefits for countries that participate in the trade market with the right rules.

    3. I would not agree with the statement "it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs". I do not agree with the statement because it could lead to more consequences in the future. One of the consequences is there would be more loss of jobs in the American industry. This could happened if China put new tariff on American automobiles like what American did to China. This means that there will be decreasing demands for America's automobiles and therefore, more workers will lose their jobs since the industry does not need to produce as much as before.

    4. For the first statement "If 7,000 Americans were to lose their jobs due to free trade with China", I will call this type of unemployment as structural unemployment. Structural unemployment is unemployment that occurs from changes in the composition of the economy. It is not the same type of unemployment experienced by the 700,000 workers who have lost their jobs each month of recession in the United States. This type of unemployment called cyclical unemployment because it's affected based on the business cycle in the US.

  18. Bai Hangon 13 Sep 2010 at 12:29 pm

    1. The Chinese government was so upset about a new tax, because it hurts American consumers those who suffer through higher tire prices. This also leads to the sales of Chinese manufacturers see sales fall as their product becomes less competitive in the US market. In addition, as many as 9,000 workers in the Chinese tire industry will lose their livelihoods due to declining demand from the US. As a result, the GDP of china will decrease, and this may affect china's economy.

    2. I agree with the statement,“Self-sufficiency is the road to poverty”. Self- sufficiency countries are those who produce goods and services by its domestic industries and they do not international trade that is the exchange of goods and services between other countries. As we may know, there are number of gains to be made from international trade, such as: lower prices, greater choice, differences in resources, economies of scale and increased competition. Those advantages may help to improve the country's economy, in this way, the country become wealth.

    3. I do not think it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. The reasons are include: firstly, American consumers suffer through higher tire prices, even, this burden has added to the low-income people. Also, the graph showed that this tariff on imported tires results in a net loss of welfare in America. In addition, this may raise the tension between the China and America's relationship.

    4. Type of unemployment is demand-deficient unemployment (cyclical unemployment)

    Because the demand for imported tires from China has decreased due to the higher prices, so this is likely to lead to a fall in demand for labour in China.

  19. Elviraon 14 Sep 2010 at 12:59 am

    1.The reason why the Chinese government is so upset consists of three main possibilities. First, China, as the one of largest trading partners of US, will be absolutely affected by increasing tariffs. US is a high car-consuming country, and US has high demand of China tires. Once the 35% tariffs are imposed on China tires, the consumption of China tires in US is probably significantly declines. Secondly, China excels at producing less technological but mass-produced goods. Therefore, no matter what kind of insignificant goods undergoes high tariffs, China is more likely to lose competitive price and competitive power. Third, the less quantity demanded is demanded, the high employment will be. As the graph states, after the tariffs are imposed, the quantity demanded decreases from Q4-Q1 to Q3-Q2.

    2.I totally agree with this sentence. When a country is faced with a condition of self-sufficiency, it is prone to self-satisfaction. Consequently, the country may not care to enhance technology and lack newest knowledge and trend. Therefore, the country may fall behind far away. Almost every country specializes in certain field. The country could focus on producing goods with absolute advantage so that it could export these goods and import goods that other countries well produce. It not only helps the country to improve efficiency but also earn more profits. Therefore, a country which wants to be rich could not be self-sufficient.

    3.I disagree with this opinion. I do not see any beneficial impact other than employment rate. Although the 7000 Americans’ job may be saved, the subsequent price may be much higher than the price American pay. For example, the price The price is not that small for the majority, especially for low-income people, which may significantly decreases the demand and GDP.

    4.The type of unemployment is supposed to be structural unemployment, since the unemployed population could not response effective reaction as soon as possible and unemployment caused by this cause is permanent. Unlike the structural unemployment, the jobs lost every month is considered as a very normal phenomenon which fluctuates a lot.

  20. JiHyun Parkon 15 Sep 2010 at 7:01 am

    1. Why is the Chinese government so upset about a new tax on such an insignificant product as automobile tires?

    The Chinese government would be upset about a new tax on automobile tires because it wil bring negative effects to the government. Firstly as the new tax imposed, the sales of product will fall as their product becomes less competitive in the US market and tariffs will be less. Furthermore as the sale of the products decrease, the jobs in this part will be decrease.

    2. “Self-sufficiency is the road to poverty”: Do you agree?

    Self-sufficiency means without the help of others it is able to provide for oneself which means a country does not do any trade. I agree with the statement “self-sufficiency is the road to poverty” because there are some parts that the country could not get or develop only with their resources. Furthermore as the country export their resources, they can get profit more than they use only in their country.

    3. Some would say that it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. Would you agree? Why or why not?

    I disagree with the statement. Even the US can save 7,000 jobs for Americans, there are more people who lose their jobs in Chinese. Therefore I think that it is only beneficial for Americans.

    4. If 7,000 Americans were to lose their jobs due to free trade with China, what would we call the type of unemployment experienced by these workers? Is this the same type of unemployment experienced by the 700,000 workers who have lost their jobs each month during the last year of recession in the United States?

    It is a structural unemployment since there is a loss of jobs (7,000 jobs) from free trade with China. A structural unemployment is different type of unemployment that is a loss of 700,000 jobs each month during the recession in the U.S and this unemployment is called cyclical unemployment since it is happened by the business cycle.

  21. Andrew McCarthyon 15 Sep 2010 at 10:52 am

    This is excellent work everyone !!

    Some of you have demonstrated the important evaluative skill of prioritizing the arguments. The introduction of the tariff is protecting 7,000 jobs but perhaps harming many more jobs in China. Should American continue to protect a sunset industry, which is inefficient? Why can't American shift some of these potentially structurally employed workers into new sunrise/infant industries such as Green Technology (solar, wind power, electric cars etc)

    Whilst many of you have recognized Obama's argument you are correct to conclude that it is a short sighted policy which will create a negative impact on global allocative efficiency.

  22. Oh Sang hoonon 15 Sep 2010 at 3:12 pm

    1. Chinese government is so upset at the tax on a product (tires) because this new tax affects Chinese economy. First, the demand of tires from China may decrease, and it leads to loss of Chinese tire industry. When U.S government sets tariffs on tire from China, consumption in China will significantly decrease. Second, the Chinese may lose the competitive price and power. So, new tax will affect the Chinese economy

    2. I agree with this sentence. This is because countries need the resources that they can't make themselves. As countries trade, they can get what they want and can boost their economies. However, if they don't trade, they will not have sufficient resources to boost their economies. Not only that, but also their quality and quantity of goods will also worse than others'.

    3.I disagree with this opinion. There is no benefit, except employment rate. Although the statements said that 7000 job in US can be saved, there will be impact on GDP and demand. For instance, as the price of tires increases, the lower class people will not buy them because of high price. So, there is no benefit, except employment rate

    4. In my opinion, this type of unemployment is a structural unemployment, which is result of mismatch between the sufficiently skilled workers seeking employment and demand in the labor market. Due to free trade, local firms will be negatively affected. During the recession the type will be cyclinical unemployment, becase unemployment will decrease.

  23. Da Som Kimon 15 Sep 2010 at 3:25 pm

    1. Why is the Chinese government so upset about a new tax on such an insignificant product as automobile tires?

    The Chinese government is so upset about a new tax on such an insignificant product because it gives benefit to American economy but doesn't give huge benefit to Chinese economy. When the new tax is imposed to automobile tires the price of the tires increases so the consumption of the tires from China will decrease. As the consumption of the tires from China decrease, the jobs related to this part will also decrease and will lead to unemployment.

    2. “Self-sufficiency is the road to poverty”: Do you agree?

    I agree with "Self-sufficiency is the road to poverty". To know meaning of "Self-sufficiency is the road to poverty", it means that without the help of others. So this means that the country will not trade with other countries. Countries can develop with using their own resources but it is very difficult and it happens very rarely. Moreover the country can get profits by exporting their own resources so when the countries don't trade it will lead to the poverty. So I agree with this statement.

    3. Some would say that it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. Would you agree? Why or why not?

    I disagree with this statement. It is because although 7000 American jobs are saved, more jobs are lost in China. So I disagree.

    4. If 7,000 Americans were to lose their jobs due to free trade with China, what would we call the type of unemployment experienced by these workers? Is this the same type of unemployment experienced by the 700,000 workers who have lost their jobs each month during the last year of recession in the United States?

    We supposed to be called this type of unemployment experienced by these workers structural unemployment. It is because now the firms in U.S can't create the firms that will supply about 7000 jobs. And the local firms are affected by the free trade so it is called as the structural unemployment.

  24. Choi Jong inon 15 Sep 2010 at 3:59 pm

    1. Why is the Chinese government so upset about a new tax on such an insignificant product as automobile tires?

    Chinese government is very upset about Obama’s decision that a new tax on such insignificant product as automobile tires, which will cause decrease in the demand of tires from China, a phenomenon that clearly leads to the loss of Chinese tire industry due to declining demand from the U.S. As, U.S government set the tariffs on the tires, it is likely that consumers suffer through higher tire prices as there aren’t enough supplies of cheap tires from China. The other reason for Chinese government get upset is the tariff obviously neglects and be oblivious of the free trade agreements between U.S and China. According to what Mr. Chen said, not only does it violate WTO trade rules, it contravenes commitments the US government made at the ‘G-20’ financial summit.

    2. “Self-sufficiency is the road to poverty”: Do you agree?

    Basically, the ‘Self-sufficiency’ means a country does not need any external helps or support. In this case, it means that a country that has this ideology does not do any international trade and it also often produces all the needs in their own country. I agree with this statement that says, “Self-sufficiency is the another term for poverty”. Some resources aren’t able in some places due to political, environmental, technological, and economical that are the reasons countries choose to trade. Trading gives lot of benefits to each country, for instance, in a case of the country cannot make it on its own resources because of the scarcity.

    3. Some would say that it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. Would you agree? Why or why not?

    I disagree with this statement because it brings in long term. In the long-term, it will have a negative effect upon the relationship between the US and China. When Americans can get jobs from the tire industry, it will disturb the tire industry in China that will lead to unemployment in China. It is only beneficial to the US economy by boosting the tire industry, however, it will lead China’s economy to unemployment.

    4. If 7,000 Americans were to lose their jobs due to free trade with China, what would we call the type of unemployment experienced by these workers? Is this the same type of unemployment experienced by the 700,000 workers who have lost their jobs each month during the last year of recession in the United States?

    This type of unemployment is called as structural unemployment since in this case, the labour market can’t provide jobs for everyone. This is different to the type of unemployment experienced the 700,000 workers who have lost their jobs each months during the crisis in the US. It is called cyclical unemployment. Chinese keep their jobs on the expense of the Americans. It is cyclical because it is affected based on the economy in the US and the unemployment will decrease when the economy recovers in the future.

  25. Hyejin Yangon 16 Sep 2010 at 2:02 pm

    1. The underlying reason why the Chinese government is upset about increased tariff on tires is China’s sensitivity towards economic growth through export. Although tires can be commonly regarded as insignificant since it is neither the necessity good nor the main good that China specializes for generating a great amount of revenue, in China’s perspective, increased costs of exporting tires have a direct impact of discouraging its economic growth.

    2. I agree with the statement to certain extent. If ‘self-sufficiency’ means a country developing its capacity for sustaining constant economic growth without relying heavily on trade, self-sufficiency certainly does not lead to poverty. This means a country coming up with an effective measure to stablize the economy by balancing the supply and demand without much foreign help is beneficial in the long run. However, if ‘self-sufficiency’ means a country refusing to open its industries for trade, self-sufficiency would directly lead to poverty. This is because every country’s domestic production and consumption are limited in generating the maximum revenue that contribute to the economic growth, due to scarcity of resources. In other words, it is far more advantageous for a country to complement the resources they lack and maximize the benefits of their specialized goods from trade, thus developing its comparative advantage.

    3. I do not agree with the statement. Personally, I would prioritize America bearing higher price of tires/cars as more important than securing the 7,000 American jobs. Securing the 7,000 jobs in the tire industry will be more significant if tire is one of the major sources that generate America’s export revenue. Tire industry would be also important in terms affecting the price of the car industry, since car’s demand is derived from that of tires. Therefore, if saving 7,000 jobs in the tire industry sustains or promotes the growth of U.S. car industry, it would be more important to save the jobs by raising the tariff on Chinese tires. However, if the U.S. car industry is not a paramount exporter, the dead weight loss of Americans paying higher prices for not only tires but also cars cannot be ignored. Although car is not a necessity and often a luxury good for the middle or lower income groups that form the majority of the population, private transportation means is necessary for a large size of nation like America. Moreover, vehicles like trucks (using tires) used for transporting bulks of goods by companies is necessary for the country. Thus, the demand of tires would be consistent in the American economy and therefore the additional price would have a significant long-term effect on the economy.

  26. Melanie Beilkeon 13 Oct 2010 at 2:50 am

    1. Why is the Chinese government so upset about a new tax on such an insignificant product as automobile tires?

    The chinese government would be against a taxation on automobiles, because it would have a negative effect on the government. The demand for the product will fall as a new tax is being imposed, because the product will becomes less competitive in the US market and the tariffs will also decrease. In addition, as the sale of the products decreases (the demand), the unemployment will start to increase.

    2. “Self-sufficiency is the road to poverty”: Do you agree?

    Self- sufficiency means that without the help and support of other countries for example, one is able to provide for oneself, meaning that this particular country does not need trade. It is true if one says that self-sufficiency is the road to poverty, because there are certain goods and services that one country will never be able to produce all on their own and survive over a longer period of time on their own without other resources that support them.

    3. Some would say that it is a small price to pay for Americans to face higher prices for one product like tires in order to “save” 7,000 Americans’ jobs. Would you agree? Why or why not?

    I do not agree with this statement. The United States can save 7,000 jobs for Americans, even though there are more people who lose their jobs in China. That is why I think that it is only beneficial for the Americans.

  27. Geoffroy the Frenchion 21 Oct 2010 at 1:07 am

    1. Well the Chinese are angry because 9,000 Chinese lost a job but they are even angrier that the USA is not keeping its word about free trade policy. Not backing up what is says, the USA is seemingly becoming unreliable and untrustworthy.

    2. I agree because opportunity cost to get a certain resource is different to each country and the way to make the most money is to trade and make sure you get the best out of what resources you got.

    3. I agree that is it is a small price to pay for so many jobs however its large price to pay over all; China will "counter attack" hurting the American economy and unemployment rate much more, on top of that the reliability of USA will be questioned.

    4. Cyclical unemployment is what the 700,000 workers a month experience, and unemployment caused by the business cycle (crisis being a big part of the cycle right now). It will take short time for them to find a job again because they haven't been replaced, so its short term, once the economy gets better they will find work to do.

    The 7,000 would go through structural unemployment, caused by change in supply and demand in specific industries. This has a long term effect on the workers though because their jobs have been replaced by the Chinese so finding a new job outside of their tire manufacturing profession even when the economy gets better will be tough.

  28. Markon 08 Nov 2010 at 5:37 am

    1. I believe the chinese are upset due to many issues. The first of them is the idea of the tax on tires, this results in a greater job loss and decreased profit for the chinese tire producers and investors. The hidden issue behind the tires is the control of the US government is trying to push onto the Chinese government. The phrase "insignificant product" has nothing to do with the control issues, the product doesn't matter, just the idea that the US can tell the economically supreme China what to do is simply displeasing and upsetting for the Chinese government.

    2. Yes, I whole heartedly agree, Trade benefits all, in states of self-sufficiency a nation cannot thrive when compared to others on the global scale. This has been evident in the past in Communist USSR, during and following the cold war many of the USSR controlled territories were in shreds, many years behind even the small countries in development. Since the communist theory cannot work with other capitalistic countries they must be "self sufficient" which had destroyed their post cold war economy until now, when their economy is almost at the point where their is less regulation than the US economy. Communist Russia is a great example of how self-sufficiency leeds to poverty.

    3. No, I would say it is not worth a small increase in cost of one item to save 7,000 jobs. Free trade is what keeps nations alive. Lets say that china is better at making tires, which they are, then they should have the advantage to make them, and the US, instead of intervening, should specialize in something else in order to create the jobs that they lose to the tire making field. Overall submitting to the increase in order to make a few more jobs gives short term satisfaction, while just pushing the long term issue back a months…

    4. This loss of jobs would be called Structural Unemployment, because it is not due to an up or down in the business cycle, its just that the job is done for cheaper in China, the demand is greater for the work in China than it is in the US. This has a long term affect on these workers because their jobs have been shipped to China, very unlikely that they will return when the economy goes up. The recession we are now in is mostly under Cynical Unemployment, because many of the loss of jobs is due to the horrible downturn within the business cycle.

  29. Blair Ton 04 Jan 2011 at 2:14 pm

    Again here in this blog it seems as if we are confusing ourselves again. I mean we don't want to trade with China because they make goods a lot cheaper than us, causing us to import more. Yet it we do anything to change it like even put a small duty tax on it or a tariff, we become worse off. I am starting to think the solution to this is one that involves going in a circle of possibilites. Then when Obama was also or it was stated that Obama was talking about free trade I was wondering about that as well. Don't we already live in a free trade economy? But then I started to actually wonder what a free trade economy is these days? And , so is the wall of protection representing protect from China because that is truthfully also a bit confusing as well. But what I don't understand is that even though it's a bad choice why did Obama make it then? I mean if an econ teacher can point out the wrong doing in that, I'm sure his economic advisors can do the same. I know they're politicians but some things just don't make any sense at all. I'm also wondering what the true better choice would be. Should we keep trading with China even though it has a cost on us? Or should we limit the trade with China which causes our citizens to pay more? I guess I am wondering what would be better in the long run. Like should we just keep doing what we're doing or just suffer and enjoy the results that come with doing that.

  30. […] It seems like only yesterday that I was blogging about the escalating tensions between China and the United States over a new tariff (a tax on imports) the US had imposed on tires manufactured in China. In fact, it was exactly two years ago this week that talk over a US/China trade war seemed to be all over the news. Here’s the post I wrote at the time: US / China Trade War – Could this be the beginning? […]

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  32. […] It seems like only yesterday that I was blogging about the escalating tensions between China and the United States over a new tariff (a tax on imports) the US had imposed on tires manufactured in China. In fact, it was exactly two years ago this week that talk over a US/China trade war seemed to be all over the news. Here’s the post I wrote at the time: US / China Trade War – Could this be the beginning? […]

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