US President Donald Trump has instigated a global trade war citing unfair trade practices and poor employment in the United States.
What started as a series of allegations and threats against China has become a reality since March 2018. United States is one of the primary consumer of a number of goods from China. Trump has also accused China of theft of intellectual property.
To reduce the trade imbalance (less exports and more imports), Trump announced imposition of 25 percent and 10 percent duty on steel aluminum respectively in March 2018 from all countries except Mexico and Canada.
But when a trade war happens, it just doesn'tt affect the two economies involved but all the economies open to world trade. It comes as no surprise here that India is getting dragged into this.
The basic economic principles of demand and supply come into play. The restrained supply of one good whether a raw material or finished good, increases the final consumption prices for the end user. Increased tax burden on goods from imposed duties is also carried by the end user.
Indian Rupee
On Tuesday, rupee hit nearly one month low as it dipped by 39 paise to Rs 68.38 against US dollar as Trump threatened to impose another round of tariffs on goods worth US $200 billion.
Indian markets
The key indices fell amid global trade war concerns as investors remained cautious. BSE Sensex plunged around 262 points at closing bell on Tuesday, touching lowest in two weeks. NSE Nifty also fell by 89.40 points. Asian markets also traded in red as US escalated the tariff war. Although Sensex regained nearly 100 points in the early session on Wednesday, it is still trading below the 35,600 mark.
Also Read: Sensex tanks as US-China trade spat escalates
Goods in India originating in the US
As a countermeasure against duties on steel and aluminum, India imposed duties on 30 goods imported from US to India that are substantially equivalent to the amount of trade affected.
A total of US $241 million worth duty will be collected by the US government from India against impositions on aluminum and steel.
To neutralize that effect, US shall stand liable to pay an estimated US $238 million duties on goods exported to India. These duties will come into effect from June 21.
But trade war brings nothing good to the end consumer as everything under tariff scanner becomes expensive.
In the food sector, almonds and walnuts will become expensive. The prices of pulses and lentils like chickpeas and mosur are likely to go up.
Shrimp lovers will perhaps be unhappy since the list of 30 goods includes artemia, an enabler in production of shrimps. Fresh Apples have also made it to the list with an additional 25 percent duty.
For the manufacturing industry, the proposed additional duty of 15 percent could negatively affect the cost of production as it escalates the raw material cost. These include stainless steel fittings, binders for factory moulds, structures and parts of structures of iron and steel, screws and bolts, a category of springs and cast articles of iron and steel, plates and sheets.
An additional duty of as high as 50 percent has been proposed on motorcycles with an engine capacity of more than 800 cc that includes bikers-favourite, Harley Davidson.
Also Read: US threatens more tariffs, China warns of countermeasures