Question

Specifically, following World War II from years 1945 to 2005, tariffs of manufactured goods dropped from 40 percent to 4 percent on exported goods

Discuss: 1) The reason for and impacts resulting from this significant change in tariffs for exports; 2) Impacts to the global economy; 3) Impacts to U.S. manufacturers and consumers.

Answer 1

1. The reasons for and impacts resulting from a change in tariffs were multiple but to discuss a few as follows:

• Less than quarter of the growth of trade between 1945 to 2005 came from the emergence of new partners.
• After the World War II trade policy shifted to a multilateral approach under the guidance of GATT.
• Multilateral trade and negotiations increased reducing tariffs and making of new rules and regulations regarding tariff and non-tariff barriers.
• The Atlantic agreement of 1941 between The USA and The UK was to address the need of broad economic collaboration and avoid reasons of economic inequities and resentments, which had been the primary cause of the World War II.

1. Impact on the global economy was as follows:

• Globally trade which was earlier of raw material and primary goods grew to intermediate goods and final products.
• This was further supported by the ease in marine and air transportations, reduction in freight rates and increase in international communication.
• European economies started trade negotiations and economic linkages to avoid any further hostilities. These multilateral negotiations encouraged collaborations with The US and between the European countries.
• Europe and Japan focused on rebuilding their manufacturing capabilities which had taken a beating during the Second World War.

1. Impacts to U.S. manufacturers and consumers were as follows:

• The GATT negotiations in 1948 led to US tariff reductions; it brought the US ad valorem rate down from 19.4 percent to 13.4 percent which was primarily due to an increase in the import prices.
• The USA which was a primary producer and exporter of agriculture produce shifted its focus to exports of finished US manufactured goods.
• 1960-1970’s US struggled with a reduction in tariffs, increase in manufacturing costs and global competition. They further faced high exchange rate, inflation, and increase in oil prices. The industry took a big setback as many labor-intensive industries pushed for trade restrictions and import barriers, which could have led to an economic war as the exporting countries would also impose similar tariff barriers.
• The VER agreement and the GATT fiber agreement implemented in 1974 comprising of 40 countries restricted imports to The US giving a fresh lease of life to their textile industry both manmade fiber and wool. They imposed a quota system and imposed import trade limits.
• The steel industry and car industry was also provided benefits by imposing import tariff barriers and restricting imports of steel from Japan and UK. This was also later liberalized when steel requirement increased.
• The end of 1900’s saw many multilateral trade negotiations between The US and other countries to reduce trade tariff barriers for mutual economic befits and many nontariff measures were also introduced. This saw a protection of local industry as well as the growth of global business with many trade pacts and VER agreements.