With the motto “Make America great again”, the President of United Statesof America Mr. Donald Trump, after being elected as 45th Presidentof United States, has taken many such decisions that made the economy of the worldfluctuate rapidly. Out of all decisions made by him in his first year ofpresidential rule, in this report we are going to discuss the probable futureimpact of his decision to enforce 30% import tariffs on solar panel cells andwashing machines.
Before discussing the impact of imposing tariffs on Solar panels andwashing machines, there was similar situation in 2009, post-recession, when US president ofthat time, Mr Barack Obama imposed tariffs on Import of Tires from China. Overview of Tire tariff in September 2009The scenario after recession was such that the unemployment rate in USwas highest and simultaneously the balance of payment was increasing rapidlyand the Domestic Industries of US was on the verge of getting Bankrupt. That’swhen Obama decided to impose Tariffs on Tires and Automobile parts importedfrom China.The Import tariffs on Automobiles and tires was raised from 25% to 35%,thus, in early 2010, the imports of new radial tires for cars dropped by 28%from the prior year which was $899 million. U.
S production of tires increasednearly 14% in 2010, reversing several years decline. But the impact was forshorter period of time. Statistics from several organization like Data from theCommerce Department show that domestic tire-manufacturing employment hascontinued a long and steady decline — to 43,197 in 2012 from 49,715 in 2007 and63,842 in 2002, reflecting in part productivity gains as well as declines intotal output.
Apart from tariffs, the domestic tire industry benefited from theU.S. economic recovery that began in mid-2009. Rising tire prices, which helpedU.S. manufacturers but hurt some tire dealers, also were bolstered by sharpincreases in the price of oil, the main raw-material cost of tires.So basically, it’s clear with the above data that imposing tariffs didnot ensure any long term benefits to US during that period. Overview of ChineseCurrency Depreciation/DevaluationChina behaves like it has taken a pledge to keep its currency stable andexports to increase in the economy.
Whenever there was fall in exports, eachtime china has devalued its currency, so that the products becomes cheaper forforeign countries to purchase from China. As Goods from China becomes cheaper,many small to medium sized export driven countries find it difficult to competein global market. TARIFF ON IMPORT OFWASHING MACHINES AND CHINESE SOLAR PANELS FROM CHINA BY USAPresident Donald Trump, by imposing import tariffs on Solar panels,washing machines, consumer electronics and steel has made a matter of concernfor renewable energy Industries and other manufacturers of china. He hasimposed 30% tariff on import of washing machines and Solar cells and panelsfrom China. It is four years of tariffs and after each year, the tariffswill be dropped by 5% gradually. The first 2.5 gigawatts of imported cellswill be exempted from the tariff each year.About ten years ago China was a minor player in solar panel industries,but today it’s leading manufacturer andcreates more than two-thirds of the world’s panels.
Its dominance has taken atoll in production in the US: More than a dozen US solar panel manufacturershave shuttered factories in the past six years, in part because they’ve beenunable to compete with Chinese producers. The main idea behind raising oftariff is to increase the cost of cheap imports, particularly from Asia, andthereby making the domestic manufacturers competent in the market. In April2017, Suniva Inc, one of the solar manufacturer which already bankrupt urged toimpose import duties on solar panels as it was adversely affected byphotovoltaic products from foreign countries.
Suniva Inc, also claimed thatother companies in US cannot survive if there is no fair competition. Accordingto Trump, imposing tariffs on foreign goods has pros such as to protect youngUS industries, encourage consumers to buy US products because its patriotic,save jobs and increase wages, and ensure favorable balance of payments.Within few hours after decision was made, US panel maker First SolarInc. jumped 9% to $75.20 and while other domestic companies like “The Tempe”Arizona-based manufacturer, gains cost for competing with foreign panels.ECONOMISTS HAS DIFFERENT PERCEPTION The solar energy organization claimed that around twenty three thousandjobs will be lost in 2018, as most jobs in US revolves around making parts forimported panels which are cheap, rather than making cells and panels themselves.There are further 130,000 jobs for installation of panels.
Government tariffswill increase the cost of solar panels and simultaneously the demand for samewill reduce, thereby reducing the production and risk manufacturing workerstheir job Washing machine industry on other hand had its own pros and cons to thedecision. Company like Whirlpool, sought to have safeguard action against itsrivals – Samsung and LG, after years of anti-dumping cases, finally saw itsshares rising by 1.8% within few hours after decision was made. Whereas Samsungand LG made a statement that this tariff is like a tax on every customer who asto pay extra cost with fewer choices to purchase from.
Chinese currencydepreciation Soon after Trump’s decision to Impose tariff on Solar panels and washingmachines, On 23rd Jan 2018, China currency depreciated from USD = 6.40 Yuan to USD =6.90 Yuan. A toptrade official in China’s commerce ministry, Wang Hejun, expressed “strongdissatisfaction” with the US’s move, and said that Beijing intends to”resolutely defend its legitimate interests.” It’s almost creating samescenario as it was for automobile and tire industry, during which China tookseveral measures to ensure that their exports don’t get affected and one of themeasures was to devalue its currency. By doing so, China not only safeguardedits export numbers, but also increased its exports to other countries therebycausing several problems to domestic industries of each country.
The same is expected this time, as China has devalued its currency. Allgoods manufactured in china are going to be even cheaper and consumers acrossvarious countries will start preferring Chinese products over domestic goods.US will not be able to create an long term impact unless it is possible forthem to manufacture cheaper than china. China’s decision has also effectedvarious countries which are its major importers. Impact on India and UAEConsidering India in particular, a weaker Chinese currency has severalimplications.
Result of China’s decision to let yuan fall against dollar probedaround Globe including India, where investors might be bought in greenback atthe expense of rupee. Consumers in India will largely depend upon Chineseproducts rather than consuming domestic products and thereby encouraging hugeimports of Solar panels, washing machines and other electronic goods. A weakeryuan means more competition and lower profits for Indian exporters; it alsomeans Chinese producers will be able to dump goods into the Indian market,thereby undercutting domestic manufacturers. The threat yuan DEPRECIATION ledto increased volatility in Indian bond markets, which triggered additionalweakness for the rupee. As China is the world’s largest energy consumer, it plays a significantrole in how crude oil is priced. The People’s bank of china decision to devaluethe yuan signaled to investors that Chinese demand for the commodity.
ForIndia, every $1 drop in oil prices results in a $1 billion decline in thecountry’s oil import bill. UAE on other hand will be benefited from import of textile, electronics,etc will become cheaper and there are hardly few or no domestic industries tomanufacture any such products in UAE. Also since UAE’s major importer of oil isChina, and oil prices are inversely related to dollar, depreciation of Chinesecurrency means dollar gets stronger and oil prices comes down steeply, andthereby consumption of oil increases. CONCLUSIONComparing theoverall scenario of what happened in 2009 and what’s going to happen now, thereare going to be short term fluctuations in the global market as the decision oftariffs involve two major participants of world economy; China and US. SinceChinese currency is depreciated, goods from china to its major importers likeIndia, UAE etc are going to be cheaper thereby causing threat to domesticindustries. On other hand, since renewable energy is going to be costlier, US willlargely depend upon oil, while other countries will take advantage of cheaperrenewable energy resources and washing machines.
Jobs at manufacturing level in US are going toincrease, but there will be huge cut down of jobs of those working in B2Cmarkets of renewable energy resource. Every Decision has it’s pros and cons,and decision like this will not create any long term impact for US nor China.