What is a Tariff?
Tariff war is a term used when countries impose duties on each other’s goods, leading to economic tensions. A tariff (or customs duty) is a duty that a country imposes on textiles imported from another country. This duty is a percentage of the value of an item, which is payable when the product reaches the border. Its purpose is to make imports more expensive and protect domestic producers. It is a way to control the trade balance between countries from an economic perspective. However, when tariff disputes occur between countries, it can cause tension from an economic perspective..
There are two main categories of tariffs:
- Import tariff: This is the duty that a country imposes on imported textiles at its borders. This increases the price of imported textiles, helping domestic producers to compete.
- Export tariff: This duty is imposed when a country exports its textiles. Although less common, it may be imposed to control the supply of a particular item.
Tariff War: Why is This Fight Happening?
The 50% tariff imposed by the US on India raises many questions: Why did a tariff war arise in the trade relations between a developed and a developing country? The answer to this question is linked to global politics, trade strategies, and economic objectives.
1. Trade Imbalance
Tariff war can arise due to a trade imbalance between the US and India. Trade imbalance between the US and India can be an important reason. The US says that its trade deficit with India is increasing, and India is providing enough protection to its domestic producers, which makes India’s market for US products tight. As a result, the US imposed tariffs on India to reduce this trade imbalance..
2. Trade Relations with Russia
Another reason is India’s growing trade relations with Russia. The US had expected India to stop importing oil from Russia, but India adopted its independent policy and continued to import oil from Russia. This made the US feel that India could harm US interests due to its independence in its policy decisions. As a result, the US imposed tariffs on India.
3. Trade Protectionism
The Trump administration in the US has moved towards trade protectionism under the “America First” policy. Trump described it as a way to correct global trade imbalances and protect domestic industries. So when tariffs were imposed on India, it became part of the US policy aimed at boosting its economy.
Its Effects on India
1. Trade Crisis and Exports
India’s main export market is the US, and now India is likely to suffer losses due to tariffs on it. Exports of products like gems and jewellery may be particularly affected. Apart from this, high-growth industries like IT and pharmaceuticals may also be affected, as US tariffs may increase the cost of these products.
2. Impact on Domestic Industries
India’s domestic producers may also be affected by this tariff war. It will be a challenge for them to maintain the competitiveness of their products and maintain their hold in the US market. For this, they will need to control the cost of production and look for new trade relations.
3. Economic Slowdown
The tariff war may also affect Indian GDP growth. Moody’s has estimated that the Indian economy may decline by 0.3%. This may increase the pressure on the Indian government treasury and weaken investor confidence.
Impact on Global Economy
The tariff war will also have a profound impact on the global market. This war may lead to disruption in global supply chains, and countries may have to change their policies and strategies. Especially, this is challenging for developing countries.
1. Disruption in Global Supply Chains
The tariffs imposed by the US can cause a disruption in global supply chains. This may cause various countries to redefine their supply sources, and in the process, they will have to look for new trading partners.
2. Increase in Prices of Consumer Clothing
The prices of imported clothing in the US may increase, which may increase financial pressure on consumers. Along with this, the rate of inflation may also increase, which can have a negative impact on the standard of living of Americans.
Conclusion
Tariff war does not only affect the trade relations of two countries, but it affects the entire global trade system. This can cause turmoil in the economy of many countries, and they will need to adopt new business approaches. This time may be challenging for India, but it can also create opportunities, where India can make its domestic industries more competitive. Additionally, India may need to restructure its foreign policy and trade relationships.
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