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The US Economy: Impact Of Trade Policies

The US Economy has implemented several major trade policy shifts in recent years including— raising import tariffs on major trading partners like China, renegotiating NAFTA into the new USMCA deal, launching export restrictions on sensitive technologies, and confronting the EU over subsidies in cases like- Boeing vs Airbus.

Higher import duties make foreign goods more expensive for US consumers and companies that rely on those inputs for manufacturing. This raises inflation and input costs for industries ranging from electronics to industrial machinery. Over $500 billion worth of annual imports have faced higher taxes.

Some companies are also reconfiguring supply chains and re-shoring production back to the US or Mexico given tariff risks. This creates some jobs but involves adjustment costs.

Retaliatory tariffs from trading partners directly hurt US exporters in sectors like agriculture and machinery. Exports to China dropped over 15% during 2018-2019 amidst rising tensions.

However— the US economy has proven resilient with consumer spending holding up well. The stimulus from tax cuts and spending has offset trade policy headwinds to sustain around 2% GDP growth.

Within The US Economy – a few trading partners like- China and the EU targeted tariffs on major US export categories like agriculture, steel and consumer goods. This directly hurt US exporters as overseas sales dropped – for example– exports to China fell over 15% during 2018-2019 amidst rising bilateral tensions.

However, the broader US economy has proven quite resilient as consumer spending and business investment held up well. Tax cuts, government spending stimulus and interest rate cuts helped offset the trade policy headwinds to sustain around 2% GDP growth.

Some US manufacturers are also reconfiguring supply chains and re-shoring production back to the US or Mexico given tariff risks and COVID-related disruptions. While this onshoring creates some jobs, it also involves heavy adjustment costs.

Reduced trade flows and supply chain uncertainty will dampen productivity over time if tensions persist. However—the Biden administration has paused further tariff escalation as it reviews strategy.

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