Question

As the DB post asks for the effect of tariff imposed by the developed country on the business sector producing that good in the developing country, could you pick a tariff imposes by US and see its impact on the business sector producing that good in India?

note:4-5 paraghraphs

Answer 1

Introduction

A tariff is an additional tax which is imposed by a country on another to discourage import of goods and services into the country and is largely seen as a measure to drive protectionism in the country, wherein we try and limit the trade and provide support to local players in the United States.

The United States, is one of the world’s largest capitalist countries in the world and has had trade relationships with almost all nations of the world, making its currency globally acceptable for trade.

However, one major problem with the country is the fact that its cost of production has been higher than other low-cost manufacturers such as India and China wherein the labour force is much cheaper than other countries.

Historically, the trade tariffs which the United States has had on India have been much lower than other countries because of their strategic partnerships, and the fact that India is a developing country with majority of their population having limited access to resources such as nutrition, healthcare, technology etc.

Case Specifics

For the purpose of answering the question, we look at the actions of the Trump administration wherein they believed that India was unilaterally imposing a lot of trade barriers on them be it in the space of automobiles, mobile phone or other technological products which were heavily taxed in India.

As a result, the administration brought out tariffs on one key import items from India which is 25 percent on steel and 10 percent over aluminium which accounts for about 3% of the total exports of India in volume. The market for this is estimated to be about 760 Million for Steel and 380 Million for Aluminium.

The resultant is that the global demand for Indian Aluminium and Steel of which it is one of the largest producers globally saw a steep fall. Other countries also began to follow the same policy of increasing tariffs on Indian aluminium or steel and the country has since then seen as much as a 45-50% estimated decline in revenue as well as demand post 2018.

With American Steel and Aluminium companies being protected and seeing an increase in demand locally, cost of producing these in India is increasing sharply due to reduced sales which may result in the country having even more serous damages in the future.

Conclusion: -

We can conclude by saying that, America in the year 2018, applied serious tariffs on India one of which was that on aluminium and on steel which has led to rapid demand declining in India and the cost of production becoming higher as much as 46% reduction in overall revenue as reported in the export figures of India.

Please feel free to ask your doubts in the comments section if any.