PROTECTIONISM: US TARIFF POLICY AND INDIA’S RESPONSE: Part I, Part II

Abstract

Ever since the great depression economists have been wary of increasing protection. The trend has been to reduce protection. It has been recognised that current account imbalances reflect macro policy and cannot be corrected by trade policy. Trade policy has mainly distributional consequences. Despite this, demand for protection rises in the US when the dollar appreciates because of the combination of monetary and fiscal policies adopted by the US authorities. The charge of unfair trade practices also arises when the US believes that its preeminent position in the world economy is being threatened. The government of India, faced by a large current account deficit and a depreciating rupee has raised import duties and liberalised external commercial borrowing. The higher tariffs will not lower the current account deficit. More short-term borrowing is unwise as large short term debts are often a precursor to a foreign exchange crisis

The US government imposed significant tariffs on its imports from China in 2018. China retaliated by slapping tariffs on its imports from the US leading to a trade war. This commentary looks into the various aspects of the US-China trade war. We first try to analyze the trade war itself and its causes followed by some immediate reactions and opinions. We also discuss the possible impacts of the USChina trade war on India. Finally, we analyze aggregate bilateral trade data between China, USA and India separately to analyze the immediate outcomes of the trade war on USA, China and India