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Trump’s tariffs are set to hurt US more than India.
The 25 per cent tariff on Indian goods that Trump announced is expected to have more significant economic implications for America than for India, SBI Research said in a report on August 1.
According to the report, the impact of these tariffs may ultimately be more detrimental to the US economy than to India’s.
The ramifications for the US economy could include a reduced GDP, increased inflation and a weakened dollar, it said. The report suggests that the US is already experiencing renewed inflationary pressures, primarily due to the recent tariffs and a declining dollar. This inflation is expected to remain above the 2 per cent target until at least 2026.
There is significant body of expert opinion and analysis suggesting that the imposition of tariffs, including those implemented by Donald Trump, can have negative consequences for the US economy and potentially “backfire,” rather than solely achieving their stated goals.
Here’s why some argue that tariffs could backfire:
Increased Costs for Consumers: Tariffs are essentially taxes on imported goods. While paid initially by importers, these costs are often passed on to consumers in the form of higher prices for a wide range of goods, from clothing and electronics to everyday necessities. Studies, such as one by Yale researchers, predict that US households could face an average tariff rate of 18.3%, the highest since 1934, resulting in higher costs for goods like shoes (up 19%) and clothing (up 17%), according to CNBC.
Harm to Businesses and Supply Chains: Tariffs disrupt existing global supply chains, increasing costs for businesses that rely on imported raw materials or components. This can force companies to absorb the costs (reducing profits), find alternative suppliers (which may be more expensive), or pass on the costs to consumers. Businesses, especially small and medium-sized enterprises, may face significant challenges, says Investopedia.
Retaliatory Tariffs and Trade Wars: Countries targeted by tariffs may retaliate by imposing their own tariffs on US exports. This can significantly hurt American industries, such as agriculture or specific manufacturing sectors, leading to decreased sales and potential job losses in those sectors.
Job Losses, Not Creation: While proponents argue that tariffs protect domestic industries and create jobs, evidence suggests they can also lead to job losses in sectors affected by higher input costs or retaliatory measures. For example, US manufacturing employment dropped to the lowest level in five years following tariff implementation.
Reduced Economic Growth: The cumulative effect of higher costs for consumers and businesses, along with trade tensions and potential retaliatory tariffs, can lead to reduced overall economic growth.
Example:
The Smoot-Hawley Tariff Act of the 1930s is often cited as a historical example of how high tariffs can backfire. While it didn’t solely cause the Great Depression, it exacerbated the economic downturn by triggering retaliatory tariffs and severely contracting global trade. The act became a symbol of “beggar-thy-neighbor” policies and the dangers of protectionism, according to the Office of the Historian.
In conclusion, while the goal of tariffs may be to protect domestic industries or address perceived trade imbalances, a significant amount of analysis suggests that they carry considerable risks and could ultimately have negative consequences for the US economy and its trading partners.
