The economy has hit a slowdown with tension spurning throughout the world. The major contributors are the boiling trade wars between various nations. USA and China have been majorly involved in trade tug of war deteriorating the economic health. The trade war is not just a bilateral issue; the situation tends to impact other nations as well. For instance, Apple proudly mentions on its products “Designed in California, assembled in China”. Various associated spare parts are imported from Malaysia, Singapore and Vietnam. The abnormal surge in tariff increases the making charges, thus increasing duties on these imported spare parts and significantly impacting the balance sheet. Trade wars create a situation similar to financial emergency, which is highly detrimental for the business and must be handled with dialogues to clear misunderstanding.
Lately, India and USA have hit a hard rock, signifying high tariffs on trans-movement of various commodities. As soon as Prime Minister Narendra Modi was sworn in for his second term to form government, US president Donald Trump withdrew Generalized System of Preference (GSP), status from India. India was a beneficiary of GSP from 1976, which covered duty concession on 12% goods exported to USA. The reasons cited were, India government had failed to assure equitable and reasonable access to markets in USA. After a fortnight, India retaliated by imposing higher tariffs on 29 goods which included apples, walnuts, almonds, nuts, lentils and boric acid. US levied 25% hike in steel and 10% on aluminum exports causing India to further increase taxes on above mentioned products. India hoped to resolve conflict by dialogue, while USA turned to dispute settlement body of World Trade Organization for disruption of tariff norms.
One cannot affirm that trade war was only elevated due to subsequent levying of taxes. Rather, differences have arisen due to various issues like India’s oil imports from Iran, defence deals from Russia even after repeated stern messages to India from US, issuance of H1B visas and new e-commerce policy by Modi government that impacted the E-commerce giants like Walmart, Amazon and Google. US manufacturers were severely impacted when prices on medical equipment were controlled. India refused the US permission to export dairy products, unless the authorities certified that ruminants were not being fed blood meal which could hurt Indian religious sentiments. US government demanded to reduce tariff on smart watches, mobile phones and telecom equipment. The most controversial was the 100% tariff on Harley Davidson bikes, which was later reduced to 50%.
Top Indian and US diplomats have held talks in order to curb the escalating situation. US President pointed out that India must lower its tariff barrier, in order to promote flow of US supply and decrease its trade deficit (which currently stands at $24 billion, nowhere near China’s $400 billion). Indian External Affairs minister S. Jaishankar met with his counterpart Mike Pompeo on the sidelines to achieve an effective deal. The meeting of two nation’s heads in G20 summit in Osaka, Japan reiterated that, as for now, the situation is being handled with bilateral talks and ways to build a synergic partnership. I , as a management student of Calcutta Business School often wonder how this will or may affect our daily lives and what brunt we have to bear for these trade wars.
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