Trade War USA Vs. China.

THEORY
  • It is an economic situation where a country raises barriers against the imported products coming from a specific country or countries. The same strategy is then opted by other countries in retaliation.
  • The objective behind such a policy is to protect the local industries from foreign competition and also to promote exports over imports.
  • The barriers raised are in the form of imposing tariffs and quotas on foreign trade as well as currency manipulation to favour local industries.
  • The decades between the two World Wars, was a period, when major world economies were engaged in a trade war by devaluing their currencies. It was carried out under the belief that a cheaper currency would encourage more demand for a country’s exports, thus boosting the domestic economy.
News Timeline:
  • MARCH 03, 2018: USA raised the import tariffs : 25% on steel and 10% on aluminum. The announcement angered key U.S. allies — Canada, the European Union, Australia, and Mexico, as well as rival China.
  • MARCH 09, 2018: The Trump administration made an announcement that Canada and Mexico will be exempted from the raised import tariffs on the steel and aluminum.
  • The Rational behind the move as explained by US: “The annual global trade of the U.S. is worth around $5 trillion and the country ends with an annual deficit upwards of $500 billion. The deficit is proof that all its trading partners are unfair to USA. It is also believed that manufacturing has declined in the U.S., which has caused large scale unemployment in USA.
  • US has a surplus in Services trade but a deficit in trade of goods.
  • MARCH 23, 2018: President Donald Trump directed imposition of tariffs on Chinese products, and restrictions on Chinese investments in America.
  • The President signing the directive said these measures were in line with the National Security Strategy which has identified China as a “strategic competitor.”The measures could target 1,300 different products, totaling tariffs up to $50 billion.
  • April 03, 2018: China retaliated against the U.S.,by levying up to 25% duties, mostly on agricultural products.
  • Most of these items will pinch U.S. President Donald Trump’s popular base among farmers.
Past Experiences:
  • Many economists are sounding alarm bells over President Donald Trump’s push toward protectionism and retaliatory trade war.
  • The Great Depression pushed millions of Americans into catastrophic poverty — which lasted for years. Savings were wiped out and Unemployment reached 25 percent.
  • The trade war that was begun in 1930, made the Great Depression worse.
  • After the great stock market crash of October 1929, two Republican members of Congress, Mr. Reed Smoot, and Mr. Willis Hawley, introduced a massive hike in tariffs that triggered a global trade war.
  • More than 1,000 economists signed a petition requesting President Herbert Hoover not to sign Smoot-Hawley into law. But Hoover signed it anyway on June 17, 1930.
  • The rest of the world imposed retaliatory measures, which crippled many US exporters.
  • US trade with Europe and other parts of the world collapsed by two-thirds.
  • Economists don’t agree on the overall extent of the damage this all caused, but all agree Smoot-Hawley protectionist measures exacerbated the Great Depression.
Effects on India:
  • India ranks ninth, on the list of trading partners that run a trade surplus with the U.S.
  • India exports more to the U.S. than what it imports from U.S. In 2017, the trade surplus which India had over USA was $ 22.9 billion.
  • India is not exempted from the tariffs raised by USA, his company will be hit by the hikes, which will increase his costs and could make his products uncompetitive.
  • Trade war between USA and China will also cause sudden fluctuations in foreign exchange which is always bad for businesses.
  • If India losses on the Exports, it will cause lower GDP, increased CAD, high unemployment rate which can further fuel deflationary pressures in India.
India offered Soya exports to China:
  • India offered soybean and soya products export to china, as Beijing may not be able to source the produce from U.S.
  • With the offer, India opted to stand with China in its trade row with Washington.
  • At the fifth China-India Strategic Economic Dialogue, NITI Aayog Vice-Chairman Rajiv Kumar said India was ready to step in and supply soya beans to China, which may no longer be available from the mid-western states of the U.S.
  • Earlier this month, China had announced fresh tariffs on soya bean imports from the U.S, as part of an unresolved trade spat between Beijing and Washington.

About the author: Aman Kumar

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