Sunday 29 January 2017

Could reducing imports create more jobs domestically?

Recently the new US Presidnet Trump is starting to set some of his campaign proposals into motion. Trump's plan of building a wall between the US and Mexico would not only damage the relationship between Mexico and the US, but also affect the trade between these two countries, especially given Trump is very likely to increase tariffs on imports in general. Many US media reporters have been criticising on his hostile movement towards Mexico, in terms of moral issues, politics and economics. I want to focus on the economic effect of a country's reducing its trade with other countries by using the example of the US.

America has a trade deficit with Mexico, Trump always promises to create more jobs in America. One of his plans to create more jobs is to lower imports and make more goods produced in America. There are approximately 6 million jobs in the US relying on exporting to Mexico. Some reporters say if there is a trade war between the US and Mexico, these jobs will be lost immediately. However, it is not fair to say that America will lose 6 million once no trading takes place between the US and Mexico, because as there are no more imports from Mexico, these goods and services will be partially produced in the US, thus some jobs will be created. If more than 6 millions jobs can be created, then it is definitely better for America to stop trading with Mexico. However, this is very unlikely to happen, as America does not only trade with one country, if America stops importing Mexican goods and services, America can import from other trade partners. Moreover, American true comparative advantage is its advanced technology and educated and skillful labour force. Once America all relies on its own production, then some of its labour force will be distributed to the lower end industries, which I view is a waste of labour force. Especially when the current America has a very low unemployment rate, if some of its labour force is used in some lower end industries, the economic productivity is dragged down due to the restructure of the economy, and the innovation and invention speed would slow down, as some of the resources are moving away from innovation and invention.

Therefore, only when the country has a high unemployment rate and a huge trade deficit, it may be sensible to cut off trade with other countries; otherwise, trade can mutually benefit the country and its trade partners.

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