Let’s take the example of the European Union (EU) as the developed region and India as thedeveloping country. The EU has imposed tariffs on certain steel and aluminum products, whichdirectly impacts India’s exports of these products. This scenario presents an excellentopportunity to explore the economic impact of tariffs on both the developed and developingcountries involved.Economic Impact on the Developing Country (India)India, being a significant exporter of steel and aluminum, has faced challenges due to the EU’simposition of tariffs on these products. The primary effects of such tariffs include:Decrease in Export Volume: The introduction of tariffs by the EU leads to increased costs forIndian exporters, resulting in a reduced demand for Indian steel and aluminum in the EUmarket. This decline negatively affects India’s export revenue, causing an adverse impact onindustries involved in manufacturing these products.Loss of Market Share: As EU importers shift towards alternative suppliers or local products toavoid the tariff-induced price hike, Indian exporters face a loss of market share. This forcesIndian manufacturers to either absorb the cost, thus reducing profit margins, or pass theadditional cost to consumers, making their products less competitive.Impact on Employment: As the demand for Indian steel and aluminum drops, the industriesmight scale down production, leading to potential job losses. The overall reduction in exportscould have a cascading effect on employment, especially in regions that rely heavily on theproduction of these goods.Economic Impact on the Developed Country (EU)The EU’s tariffs aim to protect its domestic steel and aluminum industries from internationalcompetition. However, these tariffs also have both positive and negative economic impacts onthe EU itself:Protection of Domestic Industries: The tariffs provide temporary relief to domestic producers,allowing them to compete with cheaper imports from India and other countries. This protectionhelps sustain jobs and production within the EU’s steel and aluminum sectors.Increase in Consumer Prices: As tariffs increase the cost of imported goods, EU businesses thatrely on steel and aluminum face higher input costs. This increase in production costs often leadsto higher prices for consumers, affecting the overall cost of goods such as cars, machinery, andconstruction materials.Retaliatory Measures: Tariffs can lead to retaliatory actions from the affected developingcountry. While India has not implemented major retaliatory tariffs against the EU in this case,the potential for trade tensions exists, which can escalate and negatively impact the broadertrade relationship between the two economies.RecommendationI would recommend that the EU consider reducing or eliminating these tariffs. While tariffs canprotect domestic industries in the short term, they can lead to inefficiencies, increasedconsumer prices, and strained trade relations. Free trade encourages competition, innovation,and economic growth, which benefits both the developed and developing countries in the longterm. Eliminating tariffs would enable the EU to foster a more efficient allocation of resources,while India could maintain or expand its market share, leading to mutual economic growth.References••Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2018). International Economics: Theory andPolicy (11th ed.). Pearson.Salvatore, D. (2019). International Economics (13th ed.). Wiley.
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