China,the major driver of the global economy has shown tremendous growth in itsexports and building of its foreign currency reserves. The giant country(China)summed an amount of 3.
12 trillion of its total reserves in the year 2016,whichhad been the lowest since the year 2011 but has remained the highest inrelation to the foreign currency reserves of any other country. China hasrecently increased its foreign currency reserves from the year 2016 from 3.12trillion US dollars to 3.14 trillion US dollars.
Not only the reserves hasshowed a growth but also the gold reserves has increased to USD 76.47 billionat the end of December month from USD 75.83 billion at the end of November inthe year 2016. The reason behind this increased foreign currency and its goldreserves can be clearly seen in its increased amount of goods exported from thecountry to all the different parts of the world. Itsbeen since the year 2007 where China has been the main source of imports ofElectronics, Clothing and Machinery. The major reason behind this high amountof exports is China’s low cost of production. The US manufacturers ship the rawmaterials from US to China and then China imports the finished goods back tothe US.
The United Nation’s trade deficit with China was $347 billion in theyear 2016 which clearly shows how large are the US imports over its exports toChina. The US exports to China were only $116 billion whereas its imports were$467 billion. In the year 2009, China has outpaced Canada and Mexico whichaccounted for 14% and 11% of total imports with the US.And it’s since then thatChina has become the major and the principal source of imports of US. Chinahas become the trade juggernaut. The high export of goods to the US which hasresulted in the increase of the trade deficit between both the countries hasmade the US president to think on its toes.
The US president Donald Trump hastaken actions regarding the increase of imports from China by increasing theimport tariffs on a range of goods.The event took place on 22nd ofJanuary,2018. Solar panels and Washing machines has been targeted and theimport tariffs imposed on them are 30% and 50% respectively with dutiesdeclining to 15% on the fourth year for solar panels. For washing machines thepresident has approved a combined tariffs and quotas for next three years. Trumphas imposed these tariffs to bring down the trade deficit by lowering importsto be more in line with the exports and to safeguard the manufacturers of the US.China and South Korea condemned the steps on the tariff imposition made andcalled them as a “misuse of trade measures” and have suggested taking thecomplaint to the World trade Organization (WTO), who settles the trade disputesbetween the countries. Therewas a major impact on South Korea and China.
The South Korean solar panelmakers and LG electronics, a domestic maker of appliances fell in Seoul and theSamsung Electronics Company which had comparatively less deviation said thatthe tariffs on washing machine were a great loss to the consumers and theworkers of the US. The Solar Energy Industries Association (SEIA), whichconstitutes the installation companies, described the import tariff move as “aloss for America” which will “create a crisis in a part of our economy that hasbeen thriving.” The association forecasts that billions of dollars of investmentin solar will be delayed or cancelled which will lead to the loss of around23,000 jobs this year. Anothermajor issue has been China’s currency policy. In the year 1994, Chinadeliberately kept its currency undervalued by pegging renminbi (RMB) to USdollar and maintaining the same exchange rate for over a decade. In the year2005, it ameliorates its currency policy by making its currency RMB exchangerates adjustable. This resulted in almost 19% appreciation of its currency RMBin the year 2009.
Quite a lot believe that the policy made by the ChineseGovernment has contributed to the vast US trade deficit with China by makingChinese exports cheaper than imports and is highly responsible for job lossesin the US. The policy helped China in purchasing a large number of USsecurities and making China the largest holder of the US Treasuries in the year2008. Trump knows and he as well claims that China always undervalues itscurrency by 15% to 40%,which was true in 2000 to increase its imports so he hasalso asked China to do more to raise its currency so that the price of goods inChina becomes a bit expensive which will lower the amount of goods exportedfrom China to the US.
According to the Liao Qun, the chief economist at China- theincrease in tariffs will impact the RMB and will put Chinese exports in a hardsituation which will in turn motivate the Central government to allow itscurrency RMB to further weaken to offset export losses. Accordingto the China Chamber of Commerce for Import and Export of Machinery andElectronic products, India is one of the largest importers of Solar Panels fromChina which accounts for almost 31%. The imposition of tariffs on solar panelsby the US has allowed India to take edge of this situation as they can takeadvantage of possible lower prices as suppliers seek newer markets. TheGovernment of India should check on their duty to leverage the opportunity ofprocuring cheap solar panel production. The fall in the market of solar panelsin the US has brought down the prices of the solar panels in India and this canbe a point where India could get solar panels at a very good rate. China’ssolar module manufacturing capacity is estimated to be 70 Giga-watt (GW) peryear and the major potential markets are US, India and China itself. The greenenergy activity is mostly expected to slow down in the US, so China’s solarequipment manufacturers may adopt a more competitive stroke on pricing to drivedemand. Most probably this will help India to add around 100GW of solar powercapacity by the year 2022.
Asthere is low consumption of solar panel in the US, the price of oil will tendto increase as oil is the major substitute of solar energy. The demand for oilin the US will tend to increase because of the decrease in consumption of solarenergy which will further tend to increase the price of oil. Therefore,I would like to conclude by saying that from the view point of US, most of thefirms in the US are happy about the implementation of heavy tariffs on solarpanels and washing machines because it will help them to grow. China and SouthKorea on the other hand are hard hit by the move taken by Donald Trump and theyhave charged Trump of jeopardizing the multilateral trading system by takingactions on complaints under the US law instead of through the World tradeOrganization (WTO). Many of the Americans are also unhappy about the tariffsbecause they believe to see a rise in the unemployment rate over the period.From the view point of India, India will be benefitting from these tariffs asthey could negotiate from the Chinese solar manufacturers and get more of thesolar panels at a good rate.
Lastly, the price of oil seems to rise as thedemand for oil in US rises as there will be low consumption of solar energy. OverallI feel that the steps taken by the US president Donald Trump of imposing high tariffsis not a fair one as it would create trade war between countries and can affectrelationships between them.