The this decision. In this commentary, we
The article above provides information pertaining to tariffs of nearly 300 percent being applied by the United States to CSeries jets manufactured by Bombardier (in Canada) following a complaint from resident United States jet manufacturer Boeing, and considers the effects of this decision. In this commentary, we will be looking at possible effects of this decision on imports, exports, aggregate demand, domestic, infant and foreign industries, unemployment, trade wars, efficiency, technological advances, consumer surplus and price levels, among other factors. This visual guide can be examined to determine some effects of the tariff and establish facts about the situation. We see that an increase of the price of an import of a CSeries jet increases from P to P+Tariff, which leads to an increase in quantity supplied domestically (from Q1 to Q3), however, we also observe a decrease in quantity demanded (from Q2 to Q4). As a result, we see that imports will have shrunk from (Q2-Q1) to (Q4-Q3). From this we can infer three statements: The quantity of imports has fallen, price has increased, and so has domestic production of the same good. A third value that can be inferred is an increased government revenue, which can be calculated by multiplying the tariff per unit (P+Tariff – P) with the number of imports (which is now Q4 – Q3). Graphically, this can be seen as the shaded square in the diagram.We shall look at some advantages of the imposition of the tariff. Firstly, there is a reduction in current account deficit (which is when the total value of imports is greater than the total value of exports), and this reduction in such an imbalance helps avoid high devaluation of currency.Secondly, there is an increase in aggregate demand (which is the sum of consumption, investments, government spending and exports, with imports subtracted). This can be observed graphically when the aggregate demand curve shifts to the right. We observe, therefore, an increase in output.The tariff would also help reduce government budget deficit (which is when government spending is higher than government revenue), as the tariff would serve as a source of income for the government.Generally, when a tariff is put into place, it can also help grow infant industries, however in this particular case, the United States’ Boeing is already very large therefore this tariff will only have a minimal effect here in the context of competing firms.Bombardier is going to manufacture some units for the purpose of sale in the United States in a secondary plant in Alabama shared by its partner Airbus, which is beneficial as it provides employment for local Americans, which, of course, reduces unemployment. Now, we shall consider some disadvantages of the imposition of the tariff. The article, at its end, mentions how Canada, in retaliation, cancelled its order of some American Boeing aircrafts. This is a form of a trade war. The aforementioned step cancels out the benefits of reduction of current account deficit and increase in aggregate demand due to decrease in imports, as there would be a decrease in aggregate demand due to reduction of exports to Canada in this case.There would also be a higher price level due to the tariff- and if manufacturers would attempt to lower the price by themselves, they would have to deal with reduced price margins which in this case would be quite disastrous as Bombardier was already selling the jets below manufacturing cost during the jets’ launch period.We would not normally consider efficiency loss in this situation because Boeing is also a manufacturer that sells to the world, however, due to lack of competition post-tariff it is likely that Boeing will allow their production to become less efficient since they are not pressed for maximum efficiency due to relative lack of competition. Technological advancements would, similarly, not be pushed for as hard by Boeing in a less competitive environment and there would be an overall lack in innovation which is a negative for all involved parties. There would also be an observable loss in consumer choice as the number of imports decreases for CSeries aircrafts, forcing airline firms to buy more Boeing aircrafts, even though, as the article mentions, an airline such as Delta claims Boeing does not have any suitable alternatives to the CSeries jets. In conclusion, a tariff, in the short run, would help reduce unemployment and the United States’ current account deficit, however, in the long run it is likely to lead to efficiency loss, trade wars and decrease consumer choice, and so does not seem to be a feasible long term solution for an optimal economic environment, and only seems to benefit Boeing for the most part.