Bilateral/International Relations

KEY POINTS

Issue

·        USA plans to impose hefty tariffs on imported steel and aluminium to protect US producers.

·        According to the plans, duties of 25 per cent on steel imports and 10 per cent on aluminium would be formally announced.

Effects on India

·        India is a significant producer and consumer of both metals, but is not a heavyweight in the export market. That implies, the impact would be negligible. But it’s not so simple:

·        Firstly, the US decision threatens to upset the trade flow in these metals. The US government wants to increase the share of locally produced metal.

·        If the US increases its output, the world is left with more metal than it anticipated. The countries exporting to the US are likely to look at other markets to sell their surplus, even at lower prices.

·        If global steel prices decline, it will affect prices in India as well.

·        India do have protection in the form of anti-dumping duties but that is not as good a shield as the beneficial impact of rising steel prices worldwide.

·        Secondly, India may be a relatively small participant in the global export market but its exports have risen sharply in absolute terms.

·        Domestic output has been increasing on the back of capacity additions but India’s consumption has not kept pace.

·        While the government can protect domestic producers from cheaper imports, they are on their own in the export market. A fall in global prices will directly affect export margins.

What it implies for India?

·        USA’s emphasis on tariffs would be seen as a first stage in a lengthy move towards higher barriers to trade with the US.

·        By firing the first salvo in a trade war with countries like Japan, South Korea, Germany and India, the US has hurt multilateral efforts to push China towards more responsible trading norms.

·        For the Indian government, this is a reminder that protectionism — such as it has itself turned to in recent months and years — is rarely a useful policy tool.

·        India’s efforts to revive the WTO become more urgent; if the world trading system is not working as it should be, then the WTO is the place to fix it. Or destructive trade wars may become a reality.

Introduction- Changing the stance from open economy to protectionist economy , the recent tariff imports by USA on Japan and china and other of its partner on steel and aluminium imports disturbing worlds trade and economy of emerging world . 

Body - The effects of such stance is not only limited to developed world but has more impact on emerging countries like India - some of its effects are as follows 

1- Hinders the trade - the stance of protectionist economy will hinders the trade and need of economy though it has positive impact on domestic industries but the vacuum that is created by this will create pressure on domestic industries to cater the vacuum need of economy. 

2- Flow of money - this will affect the flow of money which in turn weaken one domestic and world economy 

3- Hinders cultural relations - the aftermath of such is not only limited to financial sectors it will affect the cultural relations and create a heterogeneous society.

** The effects of having this situation has other hidden and dangerous effects some of this are discussed below 

* Employment 

* foreign remittances 

* economy 

* churn the demand and supply route 

* Research and development 

conclusion - Tue need of the hour is to rectify the protectionist stance and to bring back the globalisation with some regulation that it will cater the demand of globalised world and protect the domestic industries of countries of those who feared from open trade .