`The Controversial approval of tariffs on imported washing machines andsolar panels in the united states. This is United States president Donald Trump’s first movetowards ‘AMERICA FIRST’ trade policy, which is brought about to protect thelocal manufacturers from the International foreign competition. When he hadpromised to protect the United states borders from the internationalmanufacturers for “Manufacturing our products, stealing our companies and destroyingour jobs” Donald trump has imposed tariffs on imported Solar Panels and Washingmachines from China.
This is Trump’s first tariff order and the mostconsequential trade action since he withdrew from the pacific trade deal andbegan negotiations to over haul the North America free trade agreement.The move was in response to petitions from the United statesmanufacturers (Whirlpool, Suniva and solar worlds America) i.e. USwashing machine & Solar panel manufactures, who have been complaining foryears that the rising imports, specifically from china have been eating uptheir sales, owing to this Trump imposed a tariff of 30% in the first year, whichwill gradually fall to 15% in the coming four years. But the duties on theimported washing machine and its parts were as much as 20% on the first 1.
2million products and 50% above that number. The percentage will drop to 16%& 40% $ by the third year. Implications:1. China.The imposition of tariff on washing machines and solarpanels will directly affect China in a big way. Firstly, the United statesbeing such an enormous country, the imports from China will be in large number.
The application of tariff will drastically reduce China’s export to US. Because ofthe reeducation of the Chinese export to the U.S. there will be a decline inthe inflow of dollarin the country which will bring down the forex reserve of the country to quietan extend, owing to which the value of the Yuan will depreciate from 6.40/$ to6.90/$ which will hurt the Chinese economy. The reeducation of exports whichalso hurt the balance of trade of the country causing imbalances. The fall inthe demand from America for the washing machine and solar panels will result inChina having excess inventory which will be expensive to hold hence they resortto dumping of the products in countries like India at/under cost of productionbringing in a lot of Indian rupee instead of dollar and the Indian rupee isnon-convertible in the foreign market.
Because of the depreciation of the yuanit becomes cheaper for other countries to import products from china,benefiting them along way. The fall in the yuan mean that the price they payper barrel of oil will go up, Chine importers 11 billion barrels of oil/day andOil has big importance in Manufacturing sector (Transportation &production) hence the cost of production will also go up hurting China’sbiggest stream of income. 2. INDIA.India has a population of 3.2Billion people and hence becomes the obvious destination for China to Dump itsexcess stock meant to be exported to the united states. This move in turn willhurt the Indian local manufacturers as they won’t be able to compete with theChinese products as they will be selling them below cost of production whichwill heavily hurt the local manufactures and supplier hurting the business ofmany of them and causing some of them to even shut down owing to people losingtheir job and causing unemployment among the small manufactures which is again,is pressure on the Indian Government. Many of the unemployed then resort toCrime and joining radical groups like the Naxalites which is a threat to thecountry.
3. UnitedStates of America. The radical move of the United States, of imposing such heavy tariffs onChinese goods will naturally result in China retaliating, by imposing tariffson American Imports but, the fact of the matter is that China holds over 3.
2 trillionof united states $ in the federal reserve of which $1,700 billion is in theform of United States Bonds. China being the extremist country that it ishighly capable and fighting back in a big way one of which could be selling offits U.S. bonds which will have ENORMOUS repercussions on the united stateseconomy. How? When China sells such a large number of United states bonds it will cause the interestrates of the American banks to go up.
America being a debt economy, having 18billion in debt in a 19 billion dollar GDP/year country, it will result in thecost of living in the country to go up to a large extend forcing banks toshrink its credit policy and reductions in credit facilities this will resultin the demand of goods and services reducing to big extend which initially willmean that all the manufacturing/ service firms will first have to cut down onproduction which will cause reeducation of its employees which again causesunemployment in the countryand overtime will cause many of the companies and offices to shut downcausing large scale unemployment and recession in the market, due to thenon-performing assets of majority of the account holders will force many banksto declare bankruptcy and shut down forcing the dollar to depreciate andweakening the united states economy similar to the great depression of the1930’s. the existing banks will again heavily rely on interbank borrowing tomeet its required liquidity which will cause the demand of inter bank creditrequirement to go up pushing the LIBOR to up to 200 basis points which is badfor the global bank scenario. The rate of the United states dollar and the costper barrel of oil is inversely proportionate. The possible depression of thedollar will cause the oil rate/ barrel to go up which will have itsrepercussions worldwide. 4. UNITED ARABEMIRATES: United Arab Emirates is the largest producer andexporter of crude oil in the world, in the case that the Oil price rise willprove higher demand for the oil and higher income for UAE.
United Arab Emirateshas so much solar potential because of it Geo positioning hence would probablytake advance of the Trade war between U.S. and China and acquire all the solarpanels that were to be exported to US at dumping rates and be solar efficient. To Conclude, it is seen that small geo political moveshave large ripple effects, some positive and some negative. Countries likeAmerica must take into consideration all these factors when imposing suchdrastic tariffs on China.