With US President Donald Trump enforcing punitive tariffs on neighbouring nations such as Canada, Mexico, and China, the global community is staring down the likelihood of an all-out trade war in the near future. Trump’s decision to impose tariffs on US exports at the same level as those imposed by other countries is yet another blow to the international trade. Although it is being touted as a fair move, it is also disrupting supply chains and encouraging trade wars. It risks burdening developing countries in particular.
Tariff Conflicts Affect Global Trade
Tariff conflict means a trade dispute in which nations levy tariffs (taxes) on one another's products. The current trade conflicts between the United States and China, during which both nations have levied tariffs on billions of dollars in goods. This is often carried out as a response to perceived unjust trade practices or to safeguard local industries. Although tariffs may provide certain immediate advantages to particular local industries, they frequently result in adverse effects on the global economy, companies, and consumers over time.
Major Effect on Global Trade
1. Rising prices: Tariffs raise the cost of imported products, potentially resulting in elevated prices for buyers.
2. Decreased trade activity: Increased prices may deter consumers and businesses from purchasing foreign products, resulting in a drop in the total volume of global trade.
3. Supply chain interruptions: Companies depending on imported parts or materials might encounter disturbances and higher expenses because of tariffs.
4. Economic instability: Tariff conflicts can generate unpredictability for companies, leading to reluctance in investing or growing, which may adversely affect economic expansion.
5. Reprisal and intensification: Tariffs imposed by one nation can provoke retaliatory tariffs from other nations, possibly escalating into a comprehensive trade war that has broader economic ramifications.
Impact of Reciprocal Tariffs
While protectionist trade policies are a fundamental feature of Donald Trump’s economic model, this decision in the form of reciprocal tariffs is a further manifestation of America’s economic nationalism. Its impact is likely to undermine global trade cooperation and create turmoil in international trade. Reciprocal tariffs mean that whatever a country imposes on American products, the US will impose the same level of tariffs on that country’s products. While this policy is intended to bring about equality in trade, the international trading system is much more complex than this. Countries’ tariff structures are shaped by history, economic conditions, and strategic interests. Developing countries impose high tariffs to protect their industries. Otherwise, the mandating a uniform tariff system risks disrupting the development of these countries.
Why Trump Need Reciprocal Tariffs?
Since the US technology and pharmaceutical sectors do not have high tariffs, the reciprocal policy is likely to be an overreaction. Why does Trump need reciprocal tariffs? He has always described the trade deficit as an unfair policy. He argues that while countries like China and India impose high tariffs on American products, the US keeps its markets open to them. But global economists have long said that a trade deficit is not necessarily a bad indicator. It reflects factors such as consumer choices, production capacity, currency exchange rates, and investment flows. The US has been the strongest economy in the world despite running a trade deficit for decades. But Trump has portrayed the trade deficit as a threat, completely ignoring the interests of American consumers who receive imports at lower prices.
Sever Impact on Indian Exports
The impact of reciprocal tariffs on India is likely to be severe. On the trade front, India has imposed high tariffs on some sectors, especially textiles, automobiles, and agriculture. If the US retaliates with high tariffs on these sectors, there is a risk that US exports of Indian products will be severely affected. Trump's steel and aluminium tariffs have already affected Indian companies. If reciprocal tariffs are implemented again, India's pharmaceutical and IT sectors are also likely to be hit. If the cost of Indian products in the US increases, exports will decrease and thousands of jobs will be lost. Moreover, if trade relations weaken, India may have to look for new markets. Given the global trading system, Trump's decision could bring more crises.
Serious Problem for Indian Farmers
Important factor is how these tariffs are calculated. The US Trade Representative’s office can analyse the average tariffs that other countries impose on American products and set US tariffs accordingly. However, some sectors of trade are highly protected. Others operate with low tariffs. Therefore, a reciprocal tariff policy can destabilize the market. For example, India’s agricultural sector needs to be protected by high import tariffs. American agricultural products are produced with government subsidies and are available at low prices. In such a situation, the implementation of reciprocal tariffs can cause serious problems for Indian farmers.
Do US Lose Global Trade Leadership?
The World Trade Organization is a system intended to resolve trade disputes. But if Trump's policy leads other countries to retaliate with tariffs, it will increase volatility in international markets. Countries like China and the European Union have already had experience in responding to Trump's trade policies. If the same thing happens this time too, the trade war is likely to escalate. Its impact on the global economy is likely to be serious. This development is slowly causing America to lose global trade leadership. Although Trump thought that retaliatory tariffs would facilitate American trade, he completely ignored the international impact that this would have. This risks serious economic damage to developing countries. For countries like India, it will be challenging to maintain trade relations with the US amid these protectionist trade policies. If the US continues such protectionist policies, the impact could break the global economy, and in the end, no one will be able to benefit from it.
