The U.S., once a champion of free trade and architect of globalisation, is now reversing its stance.
President Donald Trump announced a minimum 10% tariff on all imports, with much higher tariffs on 60 countries.
Example of new reciprocal tariffs:
20% on European Union
27% on India
46% on Vietnam
145% on China (effective April 11)
Tariffs of 25% had already been imposed on Mexico and Canada (Feb 2024).
Economic Impacts
Stock markets crashed due to fear and uncertainty.
China retaliated with 125% tariffs on U.S. goods.
A potential global recession is feared.
Trump paused the “reciprocal” tariffs (excluding China) for 90 days starting April 9.
Price Impact
A product costing $100 from Vietnam (at 3% old tariff) will now cost $146 under new tariffs.
Tariffs may:
Protect domestic industries from foreign competition
Cause price rise in consumer goods
U.S. Trade and Globalisation
U.S. imports exceeded exports, leading to a $1,311 billion trade deficit in 2022 (≈5% of GDP).
China exported $576 billion worth of goods to the U.S. in 2022, while the U.S. exported only $154 billion to China.
The dollar’s dominance helped the U.S. sustain the trade deficit (especially with China backing U.S. treasury bonds).
Mutual dependence of U.S. and China was the backbone of globalisation in the 2000s.
Causes Behind U.S. Tariff Shift
Globalisation created job losses and inequality in developed economies.
Steel and automobile sectors in the U.S. were especially hit by imports.
Trump’s voter base (disaffected industrial workers) pushed for trade protectionism.
The goal is to revive U.S. manufacturing by curbing cheap imports.
Risks of the U.S. Strategy
Consumer prices in the U.S. will rise, affecting citizens.
Doubtful if U.S. firms can scale up quickly to meet internal demand.
Risk of inflation + lower consumption, triggering a domestic slowdown.
China’s Response and Strategy
China vows to fight the trade war till the end.
It had prepared over a decade by:
Reducing export dependence (Exports-to-GDP fell from 35% in 2012 to 19.7% in 2023).
Reducing dependence on the U.S. (U.S. share in China’s exports fell from 21% in 2006 to 16.2% in 2022).
Investing heavily in AI, electric vehicles, and tech innovation.
Shifting production to Vietnam and other East Asian countries.
India’s Position and Challenges
Trump called India the “tariff king”, due to tariff hikes since 2018.
India exported $91 billion to the U.S. in 2022, a vital market to manage the import bill.
Exports = only 21.8% of India’s GDP, so tariff impact may be less severe than other countries.
No tariff hike on India’s pharmaceuticals and services, two major export sectors.
Key Indian Concerns
India’s weak manufacturing base is a major vulnerability.
Tariff hikes + low manufacturing = limited export potential.
PLI scheme and tariff protection have not revived manufacturing significantly.
India urgently needs:
A clear industrial policy
Boost in investments
Strengthening of domestic manufacturing to navigate the changing global trade dynamics.
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