Washington:
US President Donald Trump on Wednesday imposed sweeping tariffs that target key economic partners, escalating global trade tensions. China faces a 34 per cent tariff, the European Union 20 per cent, and India a 26 per cent “discounted reciprocal tariff.” The affected sectors span automobiles, dairy, steel and electronics.
Trump’s trade battles are not new. In his first term, he aggressively targeted China with tariffs, leading to retaliatory duties on American exports. His tariff threats also played a role in renegotiating the US-Mexico-Canada Agreement in 2020.
What Are Tariffs?
A tariff is a tax that a government places on goods and services imported from other countries. When products cross a nation’s borders, the importing business pays this tax to its home country’s government. Tariffs are typically calculated as a percentage of the item’s value, known as an ad valorem tariff.
Why Are Tariffs Imposed?
Their purpose is to:
- Protect Domestic Industries: By making imported goods more expensive, tariffs encourage consumers to buy products made locally, shielding domestic businesses from foreign competition.
- Generate Government Revenue: Tariffs provide a source of income for governments, especially in countries where other forms of taxation might be limited.
- Address Trade Imbalances: Tariffs can be used to correct trade deficits by discouraging imports and promoting exports.
Types Of Tariffs
- Ad Valorem Tariffs: Charged as a fixed percentage of the item’s value
- Specific Tariffs: Charged as a fixed amount per unit of the imported good, regardless of its value.
- Compound Tariffs: Combine both ad valorem and specific tariffs on the same item
Who Pays For Tariffs?
Importers pay tariffs when goods enter the country, but the cost usually gets passed down. Businesses may absorb some of it, reducing their profits, but most often, consumers end up paying higher prices. In some cases, exporters lower their prices to stay competitive. Over time, companies might move production to the US to avoid tariffs. Importers can also request exemptions if no other suppliers are available.
The Process Of Collecting And Enforcing US Tariffs
US Customs and Border Protection (CBP) enforces tariffs at nearly 330 ports of entry, including border crossings, seaports, and airports. The Treasury Department oversees the regulations, but CBP handles collection, audits, and penalties.
How It Works:
- Imported goods receive numeric codes under the International Harmonised System, which determines the tariff rate.
- Businesses pay tariffs at customs clearance, and the funds go to the Treasury’s General Fund.
- Incorrectly declaring product details – whether by mistake or fraud – can lead to penalties.
Special Cases:
- Re-Imported US Goods: If a product made in the US is not altered abroad, it returns duty-free.
- Manufactured Goods: If US gold is sent to India to make earrings, the final product (including the gold’s value) is taxed upon re-entry.
Trump has imposed a 26 per cent reciprocal tariff on Indian goods.
What Are Reciprocal Tariffs?
A reciprocal tariff is when one country matches the import tax (tariff) that another country places on its goods.
In simple terms, if Country A charges a 10 per cent tariff on imports from Country B, then Country B responds by charging the same 10 per cent on goods from Country A. The idea is to ensure fair and balanced trade between nations.
Some countries set tariffs based on trade deficits, not just matching rates. For example, the US has considered higher tariffs on nations with whom it has a large trade gap, aiming to correct what it sees as unfair trade.