TRADE WAR IF IT REALLY HAPPENS – EFFECTS ON INDIA

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The World War, if it happens, will be an Economic War, to destroy one country’s economy by
another country. The definition therefore is; “A trade war is an economic conflict resulting from
extreme protectionism in which states raise or create tariffs or other trade barriers against each
other in response to trade barriers created by the other party. Increased protection causes both
nations' output compositions to move towards their autarky position.” Some economists agree
that certain economic protections are more costly than others, because they may be more likely
to trigger a trade war. For example, if a country were to raise tariffs, then a second country in
retaliation may similarly raise tariffs. An increase in subsidies, however, may be difficult to
retaliate against by a foreign country. As it escalates, a trade war reduces international trade.
Many poor countries do not have the ability to raise subsidies. In addition, poor countries are
more vulnerable than rich countries in trade wars; in raising protections against dumping of
cheap products, a government risks making the product too expensive for its people to afford.

A trade war starts when a nation attempts to protect a domestic industry and create jobs. In the
short run, it may work. But in the long run, a trade war will cost jobs and economic growth for all
countries involved. It could lead to a chain reaction and could be even destroying economies of
developing nations. This could even have an impact on India if it lasts longer.

UNITED STATE’S TRADE WAR

On March 8, 2018, President Trump announced a 25 percent tariff on steel imports and a 10

percent tariff on aluminum. Trump said, "Trade wars are good, and easy to win." But the
markets disagreed. Stock markets around the world tumbled in fear of a trade war
between the world's three largest economies. US is the world's largest steel importer. Trump
believes the tariffs would protect the 147,000 workers in the U.S. steel and aluminum industries.
But they could hurt the 6.5 million workers in industries that need steel. It will also raise costs for
steel users, like automakers. They'll pass those costs onto consumers. 

The tariff is in effect against China, Japan, and Russia. Japan's trade minister said that he
believed there was absolutely no impact on America's national security from imports of steel
and aluminum from Japan, which is an allied nation. On March 26, 2018, Trump
exempted South Korea from the steel tariff. The U.S. ally is the third largest foreign supplier of
steel. In return, South Korea agreed to amend the 2012 bilateral trade agreement. South Korea
agreed to double its import quota for U.S. cars. This how the economically stronger nation could
start dictating terms. Argentina, Australia, and Brazil were also exempted. The United States
has a trade surplus with Australia. 

At first, Trump said Canada and Mexico would be exempt until the NAFTA renegotiations were

finalized. Canada is the largest source of U.S. steel imports. Mexico is the fourth largest.  Trump
initially delayed the tariff against the European Union until June 1, 2018. He wants the U.S. ally
to cut its 10 percent tariff on U.S. autos. He also asked the EU to set quotas on its steel
exports. But on May 31, 2018, Trump announced the tariff would be imposed on Canada,
Mexico, and the EU. The U.S. Aluminum Association said the move will disrupt "supply chains
that more than 97 percent of U.S. aluminum industry jobs rely upon.”

The EU will respond with tariffs on $3.5 billion worth of U.S. exports. European Commission
President Jean-Claude Juncker warned that they would put tariffs on Harley-Davidson, on
Bourbon and on blue jeans — Levi’s. On April 21, 2018, the EU upgraded its trade
agreement with Mexico. Once signed, it will remove tariffs from almost all trade between the two
areas. In turn Mexico will also impose tariffs on imports from the United States. This will target
industries in areas that supported Trump. These include flat steel, lamps, and pork products.

The Commerce Department reported that dependence on imported metals threatens the U.S.
ability to make weapons. But the Aerospace Industry Council said Trump's tariffs would raise
costs for the military and exporters. The tariffs could also threaten national security by
dampening economic growth. This means that the equipment and other US made items would
cost more to India. That means India will have to spend more of its foreign exchange.

The best example would be the trade war between US and China. The telecom industry is part
of China's growth strategy, which is one reason why Trump imposed tariffs. The other is that the
company violated U.S. sanctions against Iran and North Korea. If it really had practically
continued for longer then it could have effected India.

Many European countries want to avoid U.S. sanctions on Iran. They may threaten tariffs on
U.S. imports as a bargaining tool. If sanctions are imposed on Iran then India would be also
affected not only economically but also strategically.

A trade war would raise prices for imported products right away. Costs would rise by the same
amount as the imposed tariff. It would give a competitive advantage to domestic producers of
that product initially. But later domestic manufacturers that rely on imported raw materials or
parts would see higher costs. It would cut into their profitability. They would either have to raise
prices, slash jobs, or both. Foreign tariffs on U.S. exports will make them more expensive. U.S.
exporters may have to cut costs, and lay off workers, to remain competitively priced. If they fail,
they may cuts costs further, or even go out of business. In the long term, trade
wars slow economic growth. They create more layoffs, not fewer, as foreign countries retaliate.
The 12 million U.S. workers who owe their jobs to exports would get laid off. Over time, trade
wars weaken the protected domestic industry. Without foreign competition, companies within
the industry don't need to innovate. Eventually, the local product would decline in quality
compared to foreign-made goods.  India has remain alert and not get trapped in any trade war,
for this it has to be prepared and not get involved in petty cheap internal vote bank politics.