Reciprocal Tariffs Explained: Is US Trying To Shift From IT To Manufacturing Hub? Find Out
After the announcement of Trump's tariffs, argumentative debates have cropped up across the globe. All the key indices of global markets turned red and the individual portfolios are bleeding, but now the question is, why did this happen? Why are reciprocal tariffs necessary at this time? What is the motive behind this decision of the US government? The tariff war is going on all over the world, but how will it be beneficial for the US economy? The trade tensions are escalating between the US and all its trade partner nations.
Here are the key points of Reciprocal Tariffs:
What are Reciprocal Tariffs?
Tariffs are a kind of tax, which is imposed on goods brought in from other countries. But the reciprocal tariffs are taxes to reciprocate the imposed tariffs by other countries on your exported goods. As a result, both countries imposed taxes on one another's imported goods. This is kind of ‘to and fro’, using this, both countries balance their trade.
Why Reciprocal Tariffs?
The primary motive of imposing reciprocal tariffs is rebalancing trade, to protect the local businesses, generate employment, preserve jobs, and boost their nation's economy. In this time US has imposed tariffs on more than 180 countries.
The major reason for this step is to mitigate its deficits with other countries and revive the manufacturing sectors. The US is looking to reduce its trade deficit and boost manufacturing, according to experts.
This is the practice to either increase exports or reduce imports from other countries to protect domestic industries. This is also a negotiation strategy related to established international trade relations.
Positive & Negative Aspects of Tariffs
It will boost the nation's economy, protect local businesses from competitive foreign products, promote domestic products to global economies, and establish the nation in the long-term tariff war.
The negative effect of tariffs is mainly that they hamper trade relations. Currently, the relationship of the US with China and the European Union is hampered, as a result, the retaliation by the European Union, China on tariffs is going on. Also, the Indian government demands sector sector-wise report from all major Indian exporters to negotiate with the US government.
In effect global stock market crashed. The panic selling is going on, and withdrawing from the markets. The trade flow among nations is disrupted, which leads to an increase in goods prices and economic slowdown.
Escalating Trade Tension
The imposed tariffs encourage other nations to impose competitive rates. That’s an escalating tariff war on imported and exported goods, which is not good for consumers. Currently, China, the European Union, and other nations are taking retaliatory measures to counter these imposed tariffs. The hampered trade relation leads to the sluggish economy, which will have to be faced by both nations.
Historical perspective
It’s not a new tariff war among all nations, from the 19th century to the 21st century, this trade practice has been done by governments to rebalance the cross border business. The Cobden-Chevalier Treaty in 1860 between Britain and France, the Smoot-Hawley Tariff Act in 1930 of the United States, and GATT reciprocal tariff policies after World War II all these government actions show that tariff wars are to be done.
In 2018, the trade war of the US with China, Canada and the European Union also escalated to a tariff war and disrupted cross-border businesses.
However, it's very crucial to know what will be the next step of the US and affected nations to sustain in tariff war.
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