Who Ben­e­fits from the On­go­ing Trade Qar...? Cer­tainly Not the End Con­sumer...!


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In March this year, 24 of the big­gest re­tail­ers in the US, in­clud­ing Wal­mart, Tar­get, Best Buy, Macy’s, Aber­crom­bie & Fitch Co, Amer­i­can Ea­gle Out­fit­ters, JCPen­ney and Kohl’s Depart­ment Stores signed a let­ter sent to the US Pres­i­dent Don­ald Trump, re­quest­ing him not to im­pose heavy tar­iffs on China, as it would not only af­fect busi­ness, but also crip­ple the av­er­age Amer­i­can for whom prices on house­hold basics like cloth­ing, shoes, elec­tron­ics, and home goods would jump man­i­fold. The Pres­i­dent how­ever, seems to have turned a deaf ear to the pleas and is go­ing ahead with his tar­iff agenda. “We’re like the pig­gy­bank that ev­ery­body is rob­bing,” Trump said, ad­dress­ing a press conference in Canada at the con­clu­sion of the G7 sum­mit.

In a tweet ear­lier this year, Trump cat­e­gor­i­cally jus­ti­fied his crack down on what he calls ‘un­fair’ trade – “When a coun­try (USA) is los­ing many bil­lions of dol­lars on trade with vir­tu­ally ev­ery coun­try it does busi­ness with, trade wars are good, and easy to win. Ex­am­ple, when we are down US $ 100 bil­lion with a cer­tain coun­try and they get cute, don’t trade any­more – we win big.

It’s easy!” Trump is equat­ing higher tar­iffs to lower im­ports and hence more jobs com­ing back to the US.

Yet, most economists are con­vinced that the on­go­ing trade war is a tac­ti­cal mis­take that will ben­e­fit no one. Even many Repub­li­cans, who are pro-trade are un­happy and have openly ex­pressed their dis­agree­ment about this di­rec­tion. Trump had cam­paigned on the strong plank of job cre­ation, and two years down the line, he ar­gues that the tar­iffs are go­ing to save jobs and even bring jobs back from overseas. But there are few takers for this ar­gu­ment among both economists and busi­ness lead­ers, who have warned that though a few jobs may be cre­ated, many more jobs are likely to be lost, an an­gle that Trump is not con­sid­er­ing at the mo­ment.

In a re­cent re­lease, The Tax Foun­da­tion pre­dicts 48,585 job losses from the tar­iffs Trump has al­ready en­acted on im­ports of wash­ing ma­chines, so­lar pan­els, steel, alu­minium and US $ 50 bil­lion on Chi­nese prod­ucts. The Foun­da­tion claims that the job loss fig­ure would soar to over 2,50,000 if Trump moves for­ward with tar­iffs on an­other US $ 200 bil­lion worth of Chi­nese prod­ucts. The crack­down is not only on China, but also on po­lit­i­cal al­lies like Ja­pan, Canada and Ger­many. This month, the first im­pact on jobs was felt when 60 work­ers at Mid-Con­ti­nent Nail, Amer­ica’s largest nail man­u­fac­turer in Mis­souri, were given the pink slip. The com­pany has stated that the fig­ure could go up to 500 work­ers, if the tar­iffs im­posed on steel are not re­duced. The trig­ger came at the end of May when Trump ad­min­is­tra­tion put a sub­stan­tial 25 per cent tar­iff on steel im­ports from Mex­ico, Canada and the EU, the main source of steel for the United States.

Ex­perts ar­gue that world trade is very in­ter­con­nected and one prod­uct/ item can­not be seen as an in­di­vid­ual iden­tity. Some prod­ucts are raw ma­te­ri­als for fi­nal prod­ucts made within the coun­try, hence the price of fi­nal prod­uct will in­crease, af­fect­ing end con­sumers. In other cases, even if the prod­ucts, like clothes and jew­ellery are end prod­ucts, since the prod­ucts are highly price-com­pet­i­tive, cre­at­ing a do­mes­tic al­ter­nate will take time, and in-be­tween, the com­mon shop­per will suf­fer. Also, trade war is mu­tual and no coun­try will ac­cept en­hanced tar­iffs with­out re­tal­i­at­ing, af­fect­ing peo­ple around the world. As ex­pected, China has re­tal­i­ated and in re­sponse has taxed agri­cul­tural and

in­dus­trial prod­ucts, from soy­beans, pork and cot­ton to aero­planes, cars and steel pipes that are im­ported from the US. The fear is that go­ing for­ward, China could also tax US tech com­pa­nies like Ap­ple, which could force the com­pany to raise its re­tail prices to com­pen­sate. In re­al­ity, if the global trade war es­ca­lates, it can hurt con­sumers around the world by mak­ing it harder for all com­pa­nies to op­er­ate, forc­ing them to push higher prices onto their cus­tomers.

The dis­cus­sion on whether the tar­iffs are good or bad for Amer­ica is cur­rently rag­ing not only around the world, but also with the US. Don Boudreaux, Pro­fes­sor of Eco­nom­ics at Ge­orge Ma­son Univer­sity, in a re­cent fo­rum, strongly re­minded the coun­try that the case against tar­iffs is not for the sake of the world, but be­gins at home, to quote him: “When a Gov­ern­ment ob­structs its ci­ti­zens’ ac­cess to goods and ser­vices that these ci­ti­zens wish to pur­chase with their own money, that Gov­ern­ment makes its ci­ti­zens, as a group, poorer. And the fact that the goods and ser­vices in ques­tion hap­pen to be of­fered for sale by for­eign­ers does ab­so­lutely noth­ing to al­ter this re­al­ity”. As of now, the trade war looks to be get­ting fiercer, and coun­tries like In­dia that have been sit­ting on the side-lines can see the sig­nals chang­ing. The US trade deficit with In­dia has be­come a sore point for the Trump ad­min­is­tra­tion, which wants full rec­i­proc­ity in trade re­la­tions with all coun­tries. Any move to levy re­tal­ia­tory tar­iffs on In­dia will badly hit small and medium en­ter­prises in sec­tors like tex­tiles, gems and jew­ellery, au­to­mo­tive, or­ganic chem­i­cals and phar­ma­ceu­ti­cals. Gar­ment ex­porters al­ready strug­gling for com­pet­i­tive­ness, could be hit very hard.

In the past few weeks, Trump has on many oc­ca­sions pub­licly high­lighted that he is un­happy with In­dia’s tar­iff pol­icy and has time and again pointed out that In­dia im­poses pro­hib­i­tive du­ties of 100% on some prod­ucts, which is un­ac­cept­able.

This stand has left lit­tle doubt about US in­ten­tion. Ex­perts stress that the easy ac­cess that In­dian ex­ports have tra­di­tion­ally en­joyed in the US mar­ket could be a thing of the past soon, if the Modi Gov­ern­ment does not prop­erly han­dle Trump’s de­mand on rec­i­proc­ity in bi­lat­eral trade re­la­tions.




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