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There is an optimum level of import tariffs for each country to suit its level of development. Very low tariffs can hurt the local industry while very high tariffs can make its industry inefficient & lethargic. India had high tariffs till nineties; PM Narasimha Rao+ his FM MMS brought it down (from 150% to 30% on industrial products). It unshackled the Indian industry, creating a rapid transformation. It moved India from the era of Ambassador / Premier Padmini cars to a country exporting small cars & auto parts.
What is the right level of import tariff for a nation?
It depends on its stage of development, its resources, technology base, labour rates etc. Let us assume 10% is the ideal import tariff rate for USA. It could be 20% for India, 30% for Bangladesh. It is a complex economics which if implemented judiciously, can result in a Win-Win situation for all. US cannot be good in manufacturing textiles; Bangladesh cannot be good at making Aircrafts.
In eighties, US & USSR produced most of the steel of the world. India was a minnow in steel production which was a high-tech industry those days. Today India has overtaken both US & Russia in steel production but still a distant second to China. US does produce high grade steel but it imports what it does not. Trump is sad about it.
While US lost labour-intensive & low-tech jobs to others, it retained its leadership in high tech areas of semiconductors, advanced weapon systems, Artificial intelligence. It created monopolies like Apple, Microsoft, Google & Amazon, each with turnover exceeding that of GDP of small nations. These companies employ a huge number of Indians, onshore & offshore because US does not have them.
Low tariffs have helped US to move to high tech, high value jobs. Thanks to its rule based transparent economic policies & leadership, US $ has exceptional strength in spite of its huge debt to GDP ratio.
It is used as a safe avenue to invest savings by others including China. It is also the most widely used currency for international trade though world is trying hard to reduce its dependence on US $. Trump policies will expedite de-dollarisation of US $.
Trump & his bhakts think that world has exploited US by charging high tariffs:
Now compare the per capita GDP of the exploited & exploiters.
USA: $90,000
Germany: $58,000
Japan $36,000
China: $14,000
India: $3000
Note, a worker in China & Japan works much harder than one in USA.
In last 4 years, US GDP growth rate is the highest among developed nations; it grew at double the rate of most European countries. US stock market had reached at its highest & US $ has remained strong. Job creation has been good & unemployment is low. Inflation had shot up very high after Covid chaos but it was brought well under control before Biden left.
Of course, US has a few problems.
US Debt to GDP ratio has kept increasing in last 12 years to absurd levels. It had peaked during last term of Trump; Biden managed to bring it down but still above 100%. Now Trump is in charge again! Consequences of high national debt could have hurt the common man in any other country but not in US, due to the exceptional strength of US $. Trump policies can kill that US $ strength forever. No doubt, US needs to control its national debt & bring it down further. Will it happen with Trump policies? Will his reciprocal Tariffs, as being applied help? Many economists doubt. For this high debt problem created by the US consumption beyond income, the right solution is to reduce the high consumption of USA; those of rich Americans. However, Trump wants to reduce the taxes on rich Americans like himself & Musk!
Another US problem is high financial inequality in USA (In India too). However, Trump’s desire to reduce the taxes on the rich & apply tariffs is going to make it worse.
A third problem is shortage of high skill STEM workers which is solved by using high skill Indians & Chinese. US also has a shortage of farm labour which is again being taken care by migrants. However, Trump wants to discourage migration, even legal migration. Will the tariffs bring back manufacturing jobs when manufacturing is becoming more & more automated with use of Robots?
The only saving grace of Trump tariffs is that it may bring down the high tariffs imposed by other countries on US products. It would be good for the whole world, not just USA.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.