With Apart from tariffs, the domestic tire industry


With the motto “Make America great again”, the President of United States
of America Mr. Donald Trump, after being elected as 45th President
of United States, has taken many such decisions that made the economy of the world
fluctuate rapidly. Out of all decisions made by him in his first year of
presidential rule, in this report we are going to discuss the probable future
impact of his decision to enforce 30% import tariffs on solar panel cells and
washing machines.

Before discussing the impact of imposing tariffs on Solar panels and
washing machines, there was similar situation in 2009, post-recession, when US president of
that time, Mr Barack Obama imposed tariffs on Import of Tires from China.  

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Overview of Tire tariff in September 2009

The scenario after recession was such that the unemployment rate in US
was highest and simultaneously the balance of payment was increasing rapidly
and the Domestic Industries of US was on the verge of getting Bankrupt. That’s
when Obama decided to impose Tariffs on Tires and Automobile parts imported
from 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 increased
nearly 14% in 2010, reversing several years decline. But the impact was for
shorter period of time. Statistics from several organization like Data from the
Commerce Department show that domestic tire-manufacturing employment has
continued a long and steady decline — to 43,197 in 2012 from 49,715 in 2007 and
63,842 in 2002, reflecting in part productivity gains as well as declines in
total output. Apart from tariffs, the domestic tire industry benefited from the
U.S. economic recovery that began in mid-2009. Rising tire prices, which helped
U.S. manufacturers but hurt some tire dealers, also were bolstered by sharp
increases in the price of oil, the main raw-material cost of tires.

So basically, it’s clear with the above data that imposing tariffs did
not ensure any long term benefits to US during that period.

Overview of Chinese
Currency Depreciation/Devaluation

China behaves like it has taken a pledge to keep its currency stable and
exports to increase in the economy. Whenever there was fall in exports, each
time china has devalued its currency, so that the products becomes cheaper for
foreign countries to purchase from China. As Goods from China becomes cheaper,
many small to medium sized export driven countries find it difficult to compete
in global market.

TARIFF ON IMPORT OF
WASHING MACHINES AND CHINESE SOLAR PANELS FROM CHINA BY USA

President Donald Trump, by imposing import tariffs on Solar panels,
washing machines, consumer electronics and steel has made a matter of concern
for renewable energy Industries and other manufacturers of china. He has
imposed 30% tariff on import of washing machines and Solar cells and panels
from China. It is four years of tariffs and after each year, the tariffs
will be dropped by 5% gradually. The first 2.5 gigawatts of imported cells
will 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  and
creates more than two-thirds of the world’s panels. Its dominance has taken a
toll in production in the US: More than a dozen US solar panel manufacturers
have shuttered factories in the past six years, in part because they’ve been
unable to compete with Chinese producers.

 The main idea behind raising of
tariff is to increase the cost of cheap imports, particularly from Asia, and
thereby making the domestic manufacturers competent in the market. In April
2017, Suniva Inc, one of the solar manufacturer which already bankrupt urged to
impose import duties on solar panels as it was adversely affected by
photovoltaic products from foreign countries. Suniva Inc, also claimed that
other companies in US cannot survive if there is no fair competition. According
to Trump, imposing tariffs on foreign goods has pros such as to protect young
US 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 Solar
Inc. 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 thousand
jobs will be lost in 2018, as most jobs in US revolves around making parts for
imported panels which are cheap, rather than making cells and panels themselves.
There are further 130,000 jobs for installation of panels. Government tariffs
will increase the cost of solar panels and simultaneously the demand for same
will reduce, thereby reducing the production and risk manufacturing workers
their job

Washing machine industry on other hand had its own pros and cons to the
decision. Company like Whirlpool, sought to have safeguard action against its
rivals – Samsung and LG, after years of anti-dumping cases, finally saw its
shares rising by 1.8% within few hours after decision was made. Whereas Samsung
and LG made a statement that this tariff is like a tax on every customer who as
to pay extra cost with fewer choices to purchase from.

Chinese currency
depreciation

Soon after Trump’s decision to Impose tariff on Solar panels and washing
machines, On 23rd Jan 2018, China currency depreciated from  USD = 6.40 Yuan to USD =6.90 Yuan. A top
trade official in China’s commerce ministry, Wang Hejun, expressed “strong
dissatisfaction” with the US’s move, and said that Beijing intends to
“resolutely defend its legitimate interests.” It’s almost creating same
scenario as it was for automobile and tire industry, during which China took
several measures to ensure that their exports don’t get affected and one of the
measures was to devalue its currency. By doing so, China not only safeguarded
its export numbers, but also increased its exports to other countries thereby
causing several problems to domestic industries of each country.

The same is expected this time, as China has devalued its currency. All
goods manufactured in china are going to be even cheaper and consumers across
various countries will start preferring Chinese products over domestic goods.
US will not be able to create an long term impact unless it is possible for
them to manufacture cheaper than china. China’s decision has also effected
various countries which are its major importers.

Impact on India and UAE

Considering India in particular, a weaker Chinese currency has several
implications. Result of China’s decision to let yuan fall against dollar probed
around Globe including India, where investors might be bought in greenback at
the expense of rupee. Consumers in India will largely depend upon Chinese
products rather than consuming domestic products and thereby encouraging huge
imports of Solar panels, washing machines and other electronic goods. A weaker
yuan means more competition and lower profits for Indian exporters; it also
means Chinese producers will be able to dump goods into the Indian market,
thereby undercutting domestic manufacturers. The threat yuan DEPRECIATION led
to increased volatility in Indian bond markets, which triggered additional
weakness for the rupee.

As China is the world’s largest energy consumer, it plays a significant
role in how crude oil is priced. The People’s bank of china decision to devalue
the yuan signaled to investors that Chinese demand for the commodity. For
India, every $1 drop in oil prices results in a $1 billion decline in the
country’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 to
manufacture any such products in UAE. Also since UAE’s major importer of oil is
China, and oil prices are inversely related to dollar, depreciation of Chinese
currency means dollar gets stronger and oil prices comes down steeply, and
thereby consumption of oil increases.

 

CONCLUSION

Comparing the
overall scenario of what happened in 2009 and what’s going to happen now, there
are going to be short term fluctuations in the global market as the decision of
tariffs involve two major participants of world economy; China and US. Since
Chinese currency is depreciated, goods from china to its major importers like
India, UAE etc are going to be cheaper thereby causing threat to domestic
industries. On other hand, since renewable energy is going to be costlier, US will
largely depend upon oil, while other countries will take advantage of cheaper
renewable energy resources and washing machines.

Jobs at manufacturing level in US are going to
increase, but there will be huge cut down of jobs of those working in B2C
markets 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.

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