What is a Tariff War?
A tariff war is an economic war between two countries. Country X imposes taxes, import quotas and subsidies on country B’s exports. In retaliation country B also imposes tariffs on the country A’s exports. Tariff wars are a side effect of protectionism, i.e., restricting international trade to improve the domestic economy. Trade protectionism can be implemented by applying tariffs, imposing government subsidies, import quotas, and currency manipulation.
Why Indulge in Tariff War?
- To protect national interest – domestic businesses and local job opportunities
- To balance trade deficits
- To dampen another nation’s economic growth
Who is Affected by a Tariff War?
On-Going Tariff Wars
To “Make America Great Again,” reduce the trade deficit and create local jobs, the Trump administration has been indulging in a trade war with countries around the world. The fiercest is with China. Over the last few years, the U.S. has been condemning China for unfair trade practices and IP. Some of the key highlights of the tariff wars between the U.S and its trading partners are:
Tariffs Levied on China
- Tariffs and quotas on Chinese Solar panels and washing machines
- Tariffs on $60 Billion worth of Chinese imports
- 25% tariff on $50 billion worth of Chinese imports such as machinery, aerospace and electronic goods in April 2018
- Tariffs on $34 billion worth Chinese products and 10% tax on $200 billion worth Chinese import goods in July 2018
- 25% tariff announced on $16 Billion worth Chinese goods like tractors, plastic tubes, and chemicals in August 2018
- 10% tariff on $200 billion of Chinese imports in September 2018
- Increase in tariff on $200 billion of imports from China from 10% to 25%
- Impose further 10% tariffs on another $300 billion Chinese goods starting September 1, 2019.
Tariffs Levied on EU
- Tariffs applied on European steel and aluminium
Tariffs Levied on India
- Tariffs on $5.6 billion of imports from India
Tariffs Levied on Turkey
- Reduced tariffs to 25% on steel and 10% on aluminium
- Ended preferential trade treatment and imposed tariffs on $1.6 billion worth Turkish imports
Tariffs Levied by China
- Tariffs on $3 Billion worth of American fruits, almonds, pork, wine, recycled aluminium, and steel pipes
- 25% tariff on 106 U.S. export goods in April 2018 including sorghum and Boeing airplanes
- Reduced tariffs from 25% to 15% on U.S. auto imports
- 5% to 20% increase in tariffs on 5140 U.S. products worth $60 billion. 25% additional tariff levied on 2493 products like petrochemicals, liquified natural gas, oils, cosmetics, and frozen minerals
- 25% tariff on $50 billion American products including beef, pork, seafood, whiskey, ethanol, and vegetables.
- 40% tariff on U.S. autos and agricultural exports in July 2018
- 25% tariff on $16 billion worth of U.S. goods including autos and coal in August 2018
- 5% to 10% tariffs imposed by China on $60 billion worth U.S. goods
Tariffs Levied by EU
- 25% Import duty on $2.8 billion range of imports from the United States including bourbon, Harley-Davidson motorcycles, denim, steel, and aluminium
Tariffs Levied by India
- Import duties on 27 American products including almonds
Tariffs Levied by Turkey
- Reduce tariffs on U.S. goods worth $1.8 billion including rice, cosmetics, motor vehicles, and alcoholic beverages
Implications of On-Going Tariff Wars
- Costlier Consumer Goods: Tariffs slapped on steel and aluminium increased the price of consumer goods such as cloth hangers, toolmakers, computer chips and heavy-duty equipment materials
- Displacement of Jobs: Lay-offs in steel industries, auto parts manufactures, U.S. bourbon industry affected the local jobs in the U.S.
- Reduced Economic Growth – The constant threatening and retaliation between the two nations by imposing taxes lead to a reduction in economic growth up to 0.4%
- Lack of Innovation – With minimal foreign competition and lack of innovation, the quality of local products become low which weakens the domestic companies
- Farmers at Loss – After cancellation of $12 billion US soybean imports, the American farmers suffered.
- New Partnerships – With the ongoing trade wars between the US and its trading partners, countries like China, Turkey, EU, Mexico, India are making new trade agreements with each other.
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