A Critical Analysis of the Impact of Recent Tariffs Imposed by the USA: Its End Goal, the Countervailing Reaction by China, and Its Influence on Major Macroeconomic Indicators of Both Countries

The recent rounds of tariffs that the Trump administration has announced have led to countervailing tariffs being imposed by other countries. As the US had the highest trade deficit with China, President Trump decided to impose the maximum penalty on this economy. On the other hand, China reacted by imposing taxes on US goods entering its economy. Economic theory has always indicated that tariffs lead to the misallocation of scarce resources. However, despite this, the primary need for economies to impose protection duties is to help their own agricultural, manufacturing, and service sectors grow, thereby increasing income and employment of their citizens, as well as tax revenues. This paper has analyzed the theoretical Impact of tariffs on the growth of the economy and has indicated that this would lead to a misallocation of resources. It also examines the Impact of these taxes on the home country, specifically on growth and employment, as well as on the valuation of the dollar and the yuan. The final Impact of the tariff will be documented only shortly before a complete year or more has passed.