How Trump’s steel and aluminium tariff shapes future world trade

Abstract

In this information era where globalization and advancement of technology helps reduce trade cost, Trump just proposed his idea of having a tariff to help The United States’ steel and aluminium industry. Many pro-free trade economists still argue that the policy will hurt world trade. The cost can be so high; Australia, Japan, and European Union are trying to get exemption from the tariff. We show there is terms of trade gain for implementing import tax for a big player such as the United States of America (USA). This turns into a tit-for-tat game, which the best response for the rest of the world is to retaliate. In turn, WTO’s role turns questionable and international trade gets harder to predict. Furthermore, we provide theoretical explanation why this will hurt the world as a whole.

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