When a nation imposes tariffs or quotas on imports and when the foreign countries retaliate with similar forms of trade perfectionism is known as trade war which causes investors to be worried more because it could affect not only both of the economies but could shake the whole world’s economic structure.
A trade war starts when a nation attempts to protect its domestic industry and create jobs. In the short run, it may work. Tariffs are supposed to give a competitive advantage to domestic producers of that product. Their prices would be lower by comparison. So consequently, they would receive more orders from local customers. As their businesses grow, they would add jobs.
But in the long run, trade war costs jobs too. It depresses economic growth for all countries involved. It also triggers inflation when tariffs increase the prices of imports.
It’s the first time that the USA has imposed tariffs directly aimed at Chinese goods in the following months in which Trump accused Beijing of stealing American intellectual property and unfairly swelling America’s trade deficit.
Deficit happens when a country imports more than it exports. As per our import-export data, the USA suffers its major Trade deficit on following imports like Electronics, which contributes most of it while machinery on second, Furniture on the third and sports equipment and toys on 4th, apparel on 5th and Footwear holds on 6th.
The Trump administration has imposed three tariffs on a total of $250 billion in Chinese imports. The Federal Reserve Estimated these tariffs cost the average household $419 per year.
On May 20, 2019, Trump imposed a fourth tariff. He raised tariffs to 25% on $200 billion worth of goods. The Fed estimated it would cost the average household $831 a year. Trump is increasing the pressure on trade talks that are underway.
But the positive points that we shall consider as opportunities.
India will benefit as levies are slapped by China on products like soybean originating from the US while these have been brought down to 0% for
Imports from India, South Korea, Bangladesh, Laos, and Sri Lanka. China sourced as high as 36,148,312 tons of soybean in 2016-17 from the US, which has now dropped to almost zero. This presents a huge opportunity for India. Similarly, if Chinese exports to the US slow down, India may gain some traction in the supply of garments, and gems and jewellery.