"Trade wars are good, and easy to win" : A study of Trump’s steel tariffs and international trade

Sammanfattning: For a long time, free trade has been considered the optimal trade pattern for a country to increase its welfare. This idea has however been put to the test by the ongoing steel tariff implementations by the United States. President Donald Trump has argued that foreign production and export is hurting the American steel industry. This paper will examine the effects and consequences of these tariffs from a trade theory point of view and analyze the potential risk of a trade war. Further, it will discuss whether this trade policy is an optimal way for the United States to improve its economy which will be related to data on the United States’history of trade and its membership in the World Trade Organization, WTO. The main findings of this paper are that if the country that imposes the tariffs are considered as being a large country and the tariffs are optimal, it can increase the country’s welfare. Another finding is that the negotiating of quotas instead of tariffs might have a similar effect for the implementing country depending on if they receive the quota rents, and a combination of tariffs and quotas might not diminish US role as a large country which means that the US can gain a positive welfare effect of the trade barriers. Actions like these might however be considered as violations of the WTO agreements and retaliation from other countries are likely. Furthermore, the historical data on the United States indicates that tariffs in general can have a positive effect on its GDP.