Raise the Roof: An Analysis of the 2018 Trade War and its Effects on Domestic Prices in the United States

Abstract

The United States has a history of imposing tariffs on Chinese imports. The Trump Administration was following the likes of Jimmy Carter, Ronald Reagan, and George Bush. This time however, the rationale for initiating the trade war was a bit different. The Trump Administration sought to negotiate the terms of trade with China to better American corporations and consumers. They wanted to fix any trade imbalances the United States had with China and get China to buy more American goods, as we were importing a lot of their goods. However, after six initial waves of tariffs in 2018 and two more waves of tariffs in 2019, it is debated whether the United States is better off or worse off. That is what this paper seeks to uncover. This paper looks at the history of SinoAmerican relations and what the Trump Administration9s underlying motivation was for starting the trade war. I then use standard economic theory, such as the Ricardian model, to debunk President Trump's motivations and the welfare losses that it caused to the economy. Using United States import data, I then analyze to what extent the United States' economy was worse off, by finding out the change in import quantities and prices. With the impact felt in the American economy, I finally outline policies that would help the United States better deal with Chinese trade relations, restore faith in the World Trade Organization and establish a new economic system to deal with trade imbalances.