Introduction
The developed country selected is Canada, and the developing country is India. Canada decided to impose a tariff on specific steel and aluminum products imported from India in 2018. This move was prompted by a rise in imports of these products from India, which was seen as a potential danger to the Canadian steel and aluminum industry. The tariff rate stands at 10% and is applicable to steel and aluminum products that are not manufactured within Canada, with a list of exempted products that are not subject to the tariff.
The Economic Impact of The Trade Barrier on the Developing Country
The economic impact of this tariff on India has been significant. The most obvious effect is a decrease in exports of steel and aluminum products to Canada, reducing the amount of revenue being generated from these exports. This decrease in exports has decreased employment in India’s steel and aluminum industry, with an estimated 10,000 jobs lost (Reinert, 2020). Additionally, India’s steel and aluminum industry has experienced a decrease in production and investment, slowing economic growth.
The Economic Impact of the Trade Barrier on the Developed Country
The economic impact of the tariff on Canada has been mixed. The tariff has allowed Canada to protect its domestic steel and aluminum industry, creating employment opportunities for Canadians in this industry and allowing them to compete on a more level playing field. Still, the tariff has increased the cost of imported steel and aluminum products, leading to an increase in the cost of production for Canadian companies that use these products (Reinert, 2020). This aspect has led to increasing consumer costs and a reduction in competitiveness for Canadian companies globally.
Recommendations Regarding the Elimination of the Tariff
If the tariff on steel and aluminum imports from India were removed, it would remove protection for Canada’s domestic steel and aluminum industry, making it harder for them to compete in the global market. Furthermore, this could cause a surge of steel and aluminum products from other countries, driving down the prices in Canada and leading to a decrease in demand for Canadian products (Carbaugh, 2022). Removing the tariff would create an imbalance in trade. India can become a major supplier of steel and aluminum to Canada. Still, Canada would only be able to export a little to India, resulting in a loss of revenue for Canadian companies.
Considering long-term effects, one should weigh the economic implications of the tariff. If the tariff persists, India may be subject to economic hardship and job loss in the sector. Canadian businesses may also suffer from a loss of competitiveness due to the increased costs of production (Carbaugh, 2022). Moreover, the tariff may be perceived as protectionism, inciting political backlash against the Canadian government. Furthermore, the tariff increases hostility between the two countries, resulting in further political disruption.
Conclusion
Ultimately, deciding whether to keep or remove the tariff is rather tricky. The tariff has enabled Canada to safeguard its domestic industry, yet it has also had a major unfavorable effect on India’s economy. Long-term economic repercussions and other options should be examined to secure the Canadian industry and mitigate economic impacts on India.
References
Carbaugh, R. (2022). International economics. Cengage Learning.
Reinert, K. A. (2020). An introduction to international economics. Cambridge University Press.
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