US which will gradually fall to 15%US which will gradually fall to 15%

US
president Donald Trump on…. Declared imposition of steep tariffs on consumer
durables like washing machines and solar panels. This was one of the very first
of the several potential trade restrictions that are on the way. This decision
came in, in order to protect domestic washing machines and solar energy
manufacturers from the potential danger that came in through the sale of low
cost Chinese replacements. This is the president’s first tariff decision and
the most potentially consequential trade action since he walked out of the
pacific trade agreement and began negotiations to over haul the North America
free trade agreement.

 

The
decision to hike up import duties on Chinese products was a result of several
complaints from washing machine and solar panel manufacturers in the United
States. Companies like Whirlpool, Suniva and solar worlds America which are
some of the renowned US washing machine & Solar panel manufactures have
been raising alarms for years towards the encroachment of rising imports from mostly
from China and korea. Companies claim that products from China and Korea are
cheaper than Us manufactured durables and hence consumers prefer them over
domestic products. This has affected the domestic market in a negative way and
hence there is a steep fall in the sales figures. Owing to these issues Donald
Trump imposed a tariff of 30% in the first year on the imports, which will
gradually fall to 15% in the coming four years. But the duties on the imported
washing machine and its parts were as high as 
20% on the first 1.2 million products and 50% above that number. The
percentage will be reduced to 16% & 40% $ by the third year.

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This
action will impact both China and the USA on multiple levels. Though the long
term impacts of this decision cannot be aptly predicted but there are some
short term implications that can be looked at:

1.      China

With
population of more than 300 million, USA is one of the largest markets for
China. The application of these newly decided tariff rates, would drastically
reduce China’s exports to the US. This will in turn result in reduction in
dollar inflow for China and the Chinese Yuan will depreciate and create a trade
imbalance in the country. The sudden fall in demand from China would leave
china with excess produce and stock piling. China would have no choice but to
sell these products at a cheaper price in countries like India and Africa and
earn in rupees which unlike dollars are nonconvertible. This wuld result in
fall of Chinese currency Yuan. China imports around 11 Billion barrels a day,
fall in yuan would make oil imports costlier for China, resulting in higher manufacturing
and production costs which will affect the biggest stream of income  for China.

 

2.      United States Of America

Sudden imposition of these tariffs will definitely affect
china but in a short term, USA would be equally ….US though has manufacturing
plants but the production capacity of those id very low as US is heavily
reliant on countries like India and china for imports. Now, sudden decrease in import
of Chinese products would add a lot of pressure on production of the few
available manufacturimg units. The demand will be constant but there will be shortage
of supply whgich would result in spike in the cost of durables and ultimately
inflation. Secondly, China holds over 3.2 Trillion of US dollars in the federal
reserve out of which $1700 billion are in the form of bonds. If china as a
defencemove starts selling these US bonds in the market, the US dollar will
take a hit , the bank interest rates in America would go up and the US being a debt
economy, they will reduce the credit limits and favcilitites. The cost of
living in America would hence go up resulting in fall in demand and shrinking
of the economy. Fall in demand would mean under utilization of the production
capacity and hence laying off of employees resulting in rise in unemployment rate.
As the dollar gets hit and depreciates, the oil prices would rise and the
ripple effect will be seen all throughout the world.

 

3.      India

With 3.2 Biliion people and ever growing population, India is
one of the top targets for China to export goods to. With reduced exports to
the US, china will have to reduce prices and sell the excess produce to India.
These low cost products would harm Indian domestic market and the infant
industries struggling to progress in India. This might result in shut down of
the smaller business and ultimately unemployment. Many of these unemployed Indians
then resort of committing criminal offenses which is one of the main concerns
in India today.

 

4.        United
Arab Emirates

UAE plays a major role in the oil market of the worldbeing
one of the largest extraxtor and exporter in the world. US’s decision to
increase tariffs would ultimately result in spike in the oil prices which would
prove to be beneficia to UAE as it exports oil. Also, the UAE being an emerging
economy could take advantage of the trade war between the two countries and
import the solars at dumping rates from China since UAE has a great potential
in developing its Solar energy sector.

 

To conclude, in this VUCA world, the smallest of the decisions
taken by the US can affect the entire world.