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Current Affairs

US announces tariff hikes on Chinese goods

Date: 24 August 2019 Tags: World Economy

Issue

 

U.S. President Donald Trump on Friday lashed back at a new round of Chinese tariffs by heaping an additional 5% duty on some $550 billion in targeted Chinese goods. This is a part of trade war between world’s two largest economies.

 

Background

  • Mr. Trump has accused China of unfair trade practices and pushed for a deal that would rebalance the relationship in favour of U.S. manufacturers and workers

  • China unveiled its retaliatory tariffs on $75 billion worth of U.S. goods, prompting the President earlier in the day to demand U.S. companies move their operations out of China.

Details

  • United States has said it would raise its existing tariffs on $250 billion worth of Chinese imports to 30% from the current 25% beginning October 1.

  • Tariffs on the remaining $300 billion worth of Chinese goods to 15% from 10%. The United States will begin imposing those tariffs on some products starting September, but tariffs on about half of those goods have been delayed.

Effect on India and world

  • China will search for other markets where it can dump the products it exported to the US. India will provide a ready-made market for these Chinese products. The trade war will result in an increase in Chinese exports to India.

  • The trade war will adversely affect global trade and financial markets. IMF has predicted that a full-blown trade war would cause the global economy to slow down by more than 0.8% in 2020. This will lead to shrinking of Indian exports in the coming months, not only to the US and China but also to other countries.

  • This will negatively affect income and employment generation in export-driven sectors and downstream industries. Given the inelastic nature of Indian imports like dependence on oil, a slowdown in exports will result in a higher trade deficit.

  • This will lead to a further fall in the Indian rupee’s value, exerting pressure on other macroeconomic indicators and depreciates currency.