Brief Summary
This video explains the concept of tariffs and how they are used in international trade. It focuses on the recent trade war initiated by US President Donald Trump and its potential impact on the global economy, particularly on India and the US. The video explores the reasons behind Trump's tariff strategy, the potential positives and negatives for both the US and India, and how a common investor can prepare for the potential economic fallout.
- Tariffs are taxes imposed by a government on goods and services imported from other countries.
- Trump's tariff strategy aims to reduce the US trade deficit by increasing imports from other countries.
- The trade war could lead to economic instability, inflation, and recession in both the US and India.
What is Happening Now? Let's set Agenda
The video begins by discussing the global economic uncertainty caused by US President Donald Trump's recent tariff announcements. Trump's agenda is to "make America great again" by reducing the US trade deficit and promoting American products. He believes that other countries have been taking advantage of the US economy, and he is using tariffs as a tool to retaliate.
What is a Tariff?
A tariff is a tax imposed by a government on goods and services imported from other countries. The video uses the example of a consumer buying a TV to illustrate how tariffs work. A consumer might choose a cheaper TV imported from China over a more expensive TV manufactured in India. To protect domestic industries, the Indian government could impose a tariff on the imported Chinese TV, making it more expensive and encouraging consumers to buy the Indian TV instead.
Why does Tariff Exist? Who benefits?
Tariffs exist to protect domestic industries from foreign competition. They can help to create jobs and boost the economy of the country imposing them. However, tariffs can also lead to higher prices for consumers and can harm businesses that rely on imported goods.
How is Tariffs Decided and Applied? India's Example
The video explains how tariffs are decided and applied, using India as an example. The Indian government considers its strengths and weaknesses in different industries when deciding on tariffs. For example, India is a major pharmaceutical manufacturing hub, so it does not impose high tariffs on imported pharmaceuticals. However, India does impose high tariffs on solar panels, as its domestic solar panel manufacturing industry is still developing.
Negative Impacts of Tariffs! Protectionism, High Prices and more
The video discusses the negative impacts of tariffs. Tariffs can lead to protectionism, where countries prioritize their own industries over international trade. This can result in higher prices for consumers, as they have fewer options and less competition. Tariffs can also harm businesses that rely on imported goods, as they become more expensive.
Trade Wars - What is Trade War? And how does it start?
A trade war occurs when two or more countries impose tariffs on each other's goods and services. This can lead to a cycle of retaliation, as each country tries to protect its own industries. The video explains how a trade war can start, using the example of two countries, Country A and Country B. If Country A imposes a tariff on goods imported from Country B, Country B might retaliate by imposing a tariff on goods imported from Country A. This can escalate into a full-blown trade war.
Chicken Wars of 1960s - Trade War Example
The video provides a historical example of a trade war: the "Chicken Wars" of the 1960s. After World War II, the US had a surplus of chicken production, and it began exporting chicken to Europe, particularly to Germany. This led to a decline in the German chicken industry, and Germany retaliated by imposing a tariff on US chicken imports. The US responded by imposing tariffs on German goods, leading to a trade war that ultimately harmed both countries.
What did Trump now with tariffs?
Trump has imposed a blanket tariff on goods imported from various countries, including China, India, and Vietnam. This means that regardless of the specific product, a certain percentage of tariff will be applied based on the country of origin. For example, Trump has imposed a 25% tariff on goods imported from China, regardless of whether they are solar panels, toys, or clothing.
Why did Trump start Tariffs?
Trump's primary motivation for imposing tariffs is to reduce the US trade deficit. He believes that other countries have been taking advantage of the US economy by exporting more goods to the US than they import from it. By imposing tariffs, Trump hopes to force other countries to buy more American products, thereby reducing the trade deficit.
How did Trump calculate tariffs?
Trump's tariff calculation is based on the trade deficit between the US and each country. The formula he uses is: Tariff charged by country X = (Trade deficit between X and the US) / (Exports from X to the US). This formula has been criticized by many economists, who argue that it is not a scientifically sound way to calculate tariffs.
Trump's Real Reason for Tariffs
The video suggests that Trump's real reason for imposing tariffs is to "make America great again" by promoting American products and reducing the US trade deficit. He wants to create jobs and boost the US economy by encouraging Americans to buy American-made goods.
Positives & Negatives for America (U.S.) with Trade Wars
The video discusses the potential positives and negatives for the US in a trade war. The potential positives include a boost to the US economy, increased jobs, and a reduction in the trade deficit. However, the potential negatives include higher prices for consumers, harm to businesses that rely on imported goods, and a potential global recession.
Positives & Negatives for India with this Trade Wars
The video discusses the potential positives and negatives for India in a trade war. The potential positives include increased opportunities for Indian manufacturers, as other countries might shift their production to India to avoid US tariffs. However, the potential negatives include a decline in Indian exports to the US, a decrease in remittances from Indian workers in the US, and a potential slowdown in the Indian economy.
How will Trade War affect a common investor?
The video advises investors to have an emergency fund to prepare for potential economic instability. It also suggests that investors should focus on improving their skills and becoming irreplaceable in their jobs. For active investors, the video recommends avoiding fundamentally weak companies and looking for opportunities to buy undervalued stocks.
Latest Developments in Tariff War by Trump
The video concludes by discussing the latest developments in the trade war. Trump has temporarily paused the tariffs on goods from Mexico, Canada, and other countries. However, the tariffs are still in place for China, and the trade war is ongoing. The video emphasizes that the situation is constantly evolving and that investors should stay informed about the latest developments.
