The Problems that Increasing Tariffs May Bring and Evaluation of Possible Solutions

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Commodities from different parts of the world can easily be found in nearly all countries. They can be energy, raw materials, and mechanical parts. It’s necessary for those goods to have a reasonable price so profits can then be realized. Tariff is one of the elements that can decide the price. For the general public, tariffs can affect life quality; for the global economy, tariffs can boost or slowing down the progress. The present essay will identify how people’s lives will be affected, and what will happen to the global economy by increasing tariffs. A possible solution with evaluation will be given for each of the problems.

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Increasing tariffs will lead to rising living costs, especially when it happens to energy supply. Countries usually provide subsidies for householders, but when it becomes a huge financial burden, governments will consider distributing the cost to get a cost-recovery price. This will lead to increasing bills on energy and further after effects including lower real income, and new families facing a harder life. In the Kyrgyz Republic, raise energy price to the cost-recovery point will cause an estimated real income decrease by over 6%. Meanwhile, the poverty rate will increase by 3.2%. Energy subsidies aimed at helping poor people to have an easier and better life, it should not be taken away from those who really need it. Governments should consider to remove subsidies on wealthy families and keep the policy for poor families. By doing so, not only the financial burden is lightened, but also prevented poor families from facing a hard life. It sounds perfect but from which income level should the government remove subsidies?

If too low, some families might still have to struggle for a living; if too high, it may cause difficulties to ensure financial security. It seems to be a dilemma. In a larger scale, changes in tariffs can affect the global economy. An example is that America has been suffering a trade deficit and they decide to address the problem. According to Trump D.J. (2018): ‘Now we have a trade deficit of $500 billion a year, with intellectual property theft of another $300 billion. We cannot let this continue!’.

The International Monetary Fund predicted that Mr. Trump’s action will definitely damage the global economy. China and America are two important participants in the global economy. Therefore, trade barriers between two countries won’t benefit anyone. Since the root of the problem is identified, a possible solution follows. America can export products that are needed by the Chinese market and introduce a value chain to enlarge profit. For example, potato peeler machine. It does available in western countries, but China doesn’t, people have no choice but to do it manually. Potatoes appear on tables in nearly every country, but in a rapid life pace, people do need this kind of machine to save time for more rest or leisure. It could be true that doing so will have more cost, but China is a huge potential market—a country with about 1.4 billion people, how much wealth can be generated?

I believe that changing the trade method will prevent this sort of trade issue more effectively. In conclusion, increasing tariffs means rising CPI (Consumer Price Level) and negative effects on global economic development. To solve them, it’s necessary to mend new policies on which part of the residence should be given subsidies and make efforts to find a new business model that can solve trade deficit in a gentler way.

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