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Context:

Donald Trump plans to impose tariffs on Canada, Mexico, and China.

Details

Donald Trump has promised to impose tariffs on the US's three largest trading partners, Canada, Mexico, and China, as soon as he takes office on January 20, 2025.

In 2023, Canada, Mexico, and China purchased over $1 trillion in US exports and contributed nearly $1.5 trillion in goods and services to the US.

Trump announced a 25% tariff on Mexican and Canadian imports and proposed imposing an additional 10% tariff on Chinese goods, however, it is unclear whether the proposed tariffs will be in addition to the higher tariffs Trump mentioned during his campaign, which include tariffs of 60% or more on Chinese goods and up to 1,000% on vehicles imported from Mexico.

Trump stated that the tariffs would remain in effect until the "invasion" of drugs, particularly fentanyl, and undocumented migrants into the United States was stopped. He also accused China of sending illegal drugs to the United States.

Potential impact of these proposed tariffs

Short Term

Tariffs would raise the cost of exporting goods to the United States for companies in Canada, Mexico, and China. These businesses are likely to pass on the additional costs to customers, resulting in increased prices.

Mexico's auto industry, which includes manufacturing plants for Honda, Nissan, Toyota, Mazda, and Kia, and Chinese auto part suppliers, could suffer significantly. Tech companies with Mexican operations, such as Foxconn, Nvidia, and Lenovo, would also be affected.

Long Term

In the long run, American industries that depend on shipping parts, materials, and finished goods across US borders may suffer significant consequences.

Industries that depend on the highly interconnected North American market may face high costs, and other governments could respond with levies on American exports, potentially raising prices in the United States and around the world.

What are Tariffs?

Tariffs are taxes imposed by one country on goods and services imported from another.

Tariffs are classified into two main types:

A specific tariff is a fixed fee based on the type of item, such as $500 for a car.
Ad valorem tariffs are a percentage of the value of the imported item, such as 5%.

Governments impose tariffs for several reasons:

To generate revenue for the government.

To protect domestic industries and jobs from foreign competition.

To make foreign goods more expensive, encouraging consumers to buy domestic products.

To protect national interests or as a foreign policy tool, such as during the Ukraine conflict when the US imposed tariffs on Russian goods.

Unintended side effects of tariffs

Making domestic industries less competitive and innovative due to reduced competition, thus lowering efficiency.

Increasing consumer prices due to fewer import options.

Potentially leading to trade wars in which countries respond with their own tariffs.

What is Trade War?

A trade war starts when two countries impose or increase import tariffs. It can harm industries and consumer sentiment in both countries.

The US-China trade war started in 2018 when President Trump accused China of unfair trade practices such as intellectual property theft and forced technology transfer. The United States imposed tariffs on Chinese imports totaling $350 billion, and China responded with tariffs on $100 billion in US exports, resulting in a tit-for-tat escalation of protectionist policies.

The trade war can affect Indian exports, imports, and overall trade strategies, including foreign investment, and participation in global supply chains.

Way Forward for India

India should strengthen its economic and strategic ties with the United States to negotiate better trade terms in national interests.

To reduce dependence on Chinese imports, India should continue to promote initiatives such as "Make in India" and Atmanirbhar Bharat.

India should expand its export market to manage risk and avoid dependency on a few large markets.

India can play an important role in reshaping international trade policies by backing equitable and open trade practices that benefit developing countries.

Must Read Articles:

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INDIA UNDER TRUMP 2.0

WEAPONIZATION OF TRADE

INDIA US TRADE POLICY

IS IMPOSING TARIFFS ON CHINESE IMPORTS A GOOD IDEA?

Source:

Indian Express