Context:

Donald Trump, the President-elect of the United States, has promised to impose tariffs of up to 60% on Chinese imports to correct the United States' huge trade deficit with China

What are Tariffs?

Tariffs are taxes imposed by one country on goods and services imported from another country.

Types of tariffs

A specific tariff is a fixed fee based on the type of item, such as $500 for a car.

Ad valorem tariff is a percentage of the value of the imported item, such as 5%.

Why Do Governments Impose Tariffs?

Tariffs generate revenue for the government.

Tariffs can help protect domestic industries and jobs from foreign competition. For example, in 2018, President Trump imposed a 25% tariff on steel imports to protect American steel manufacturers.

Tariffs protect domestic consumers by making foreign goods more expensive, encouraging consumers to buy domestic products, and potentially increasing safety if imported goods are not properly regulated.

Tariffs can be used to protect national interests or as a foreign policy tool. For example, during the Ukraine conflict, the United States imposed tariffs on Russian goods to apply economic pressure.

How Do Tariffs Work?

Tariffs impose an additional cost on imported goods, raising their price for consumers. This shifts consumer spending to domestic products rather than imports, effectively discouraging the purchase of foreign goods.

What Are the Unintended Side Effects of Tariffs?

They can make domestic industries less competitive and innovative by lowering competition, thus reducing Efficiency.

Consumer prices may rise as a result of fewer import options.

Tariffs can escalate into trade wars, prompting retaliation from affected countries.

Tariffs to Trade War

A trade war starts when two countries impose import restrictions or increase import tariffs. A trade war could harm both countries, their industries, and consumer sentiment, affecting many aspects of their economies.

US-China Trade War

The US-China trade war started in 2018, when the Trump administration accused China of unfair trade practices such as intellectual property theft and forced technology transfer and imposed tariffs on Chinese imports of about $350 billion. China responded by imposing tariffs on $100 billion on US exports, resulting in a tit-for-tat escalation of protectionist policies.

What is the potential impact of imposing tariffs on Chinese imports by the U.S.?

Tariffs would raise the cost of Chinese imports in American markets. If tariffs are widely implemented, they may increase domestic inflation by raising the cost of goods.

Tariffs may help to reduce the United States trade deficit, potentially leading to a stronger dollar and lower long-term inflation.

If U.S. consumers switch from Chinese to domestically produced goods, domestic production may rise, which will help to moderate inflation.

If other countries strike back with their own tariffs on American goods, a global trade war could break out, harming the global economy and raising commodity prices, increasing inflation in multiple countries.

Must Read Articles:

TRADE WARS

INDIA UNDER TRUMP 2.0

WEAPONIZATION OF TRADE

INDIA US TRADE POLICY

Source:

The Hindu