[DigitalOne]

Originally Posted by dragracer567

To be fair, agriculture constitutes a very low portion in terms of trade value, the US trade deficit is certainly not because of agricultural imports.

True. And this is what is their beef now (pardon the pun ). They want access for their agricultural products in return for access to US markets (for other products). Trump keeps quoting selling cheese to Canada, rice to Japan etc. They are not looking at 1-1 trade equality of the same products. That is impossible for any country, and they are not stupid (even if they seem so).

[BullettuPaandi]

Originally Posted by DigitalOne

Not trying to justify Trump tariffs or anything here, but I have often seen Trump or his advisors referring to American agriculture products, especially dairy or beef, facing tariffs in other countries including Japan. Being in an auto-enthusiast forum we often forget that US is a major agriculture producer. Not everything is about cars .

I'm more inclined to think that it is perhaps because only when it comes to specific tangible products- agricultural ones being the typical easy 'layman' example- does the argument for putting trade deficit and tariffs like two-and-two make the slightest bit of sense; elsewhere there's not much to it.

The US, although the largest exporter of agricultural products, is still a net importer- meaning they import a fair bit more than they export- simply due to consumption, which can even be argued to be 'over-consumption' or 'wasteful use' in fact. So, if they want to have an advantage of being a net exporter, they can use tariffs in some sort of protectionist measure- although I personally think it still won't be the best approach. Regulations are the better approach, which the EU has mastered enough at this point to call it 'tried and true'. Most countries, India included, had taken notice and adapted their own.

Trade deficit and tariffs can't quite be put together like two-and-two elsewhere- let's take Automobiles and Electronic Gadgets for instance- because it only considers revenue via just one factor: 'value of goods'. But there is also 'value of services'. They import American cars and gadgets like iPhones that are manufactured across the globe, but they are effectively the ultimate producers of them. They earn in licensing, royalties, etc. to have them manufactured elsewhere- for relatively dirt cheap, might I add- which is not considered in 'trade deficit/surplus'. And this is just a couple of factors in a couple of industries through which they earn in global trade; services can be just as diverse as goods, if not more.

[PreludeSH]

Isn't American agriculture subsidized for input cost ?

I also remember Clarkson's farm where he says without the govt subsidy, he made a couple of thousand dollars on the hundreds or so acres of his farm.

It will be unfair to grant access into a country where 50% of people depend on agriculture with smaller farms and very low productivity.

[PGA]

Quite a top class discussion on this thread, enabling novice like me understand the method here.

The world order, what we knew till some days ago, came up with the efforts of the few statesmen who saw the chaos and carnage starting from August 1915 to May 45 and the sacrifice of millions who fell to blood lust. A lot of things happened after that first being withdrawal of blatant imperialism, millions up lifted from poverty, rule of law etc. While, it was no way perfect but did help general population achieve greater well being and progress of humanity. People built up institutions which could keep a check on power drunk tendencies of rulers. Today, all those have vanished in front of few, as has always been if one sees the history. One doesn't need armies to bring down the humanity, it is our collective blood lust, deep down we are still tribal, we will believe and cheer our own no matter how nonsensical it may be, we have done it before and it seems we are bent upon repeating.

An old acquaintance of mine with no formal education, whose kids are abroad, came over to understand the issue. After chating with me for over an hour he said, 'when the storm is blowing, its no point trying to fight it, just duck your head and let it pass, there will be time enough to perform when the deal is done' which I did find profound. (Apologies to Kenny Roger )

[V.Narayan]

Originally Posted by dragracer567

Precisely, for example, those from the Trump administration complain about how Americans roads are filled with car brands from Japan, Korea or Germany but not vice-versa..... These countries aren't avoiding American cars because of tariffs, plenty of German cars sell in Japan and vice-versa, it's because American brands just don't build cars that the rest of the world want to buy, they barely make cars that Americans want to buy.
What I don't get is, if a lowly science major like me can understand this, why can't these geniuses who elected to run the world's largest economy armed with the world's best economic advisors get it? All we can presume is that the present US administration has surrounded itself with 'yes men'.

Great observation @dragracer567. You can't force a country's consumers to buy your products if you don't make what others wish or need to buy! The Trump administration just made USA the costliest economy in the world. For whatever reason the US is the world largest importer of both goods and services - a total of US$ 3.89 trillion. Of this $3.2 trillion are physical goods a bulk of which now face these tariffs. They just taxed themselves and their manufacturers. Every US based manufacturer or processor of even a medium size would have an import component of sub-assemblies, semi-finished goods, semi-processed raw materials, components etc. Trump just punished US domestic manufacturers more than anyone else. Would not be surprised if US manufacturing indices reflect a strong dip over the next 2 quarters till better sense prevails.

Notice how services have not been levied a tariff. That is because US is the largest exporter of services at US$ 1.1 trillion - software, all our FAANG like companies and others like Oracle, banking services - every SWIFT transaction passes through a US bank with its hefty commissions, consultancy, education et al. Imagine if rest of the world imposes a 20% tariff on Microsoft, Google, Meta etc.

The one topic most have not touched on yet is capital flows. The US by virtue of being the largest economy and having $ as the preferred currency of trade & reserves and having the deepest debt and equity markets is the world's largest beneficiary of investment flows. These investment flows rely on stability and predictability of policy. That is why no one invested in Mugabe's Zimbabwe! At some point this Trumponion unpredictability is going to touch the capital flows - how and when I do not know.

I am eagerly waiting to watch what happens to services and capital flows.

[am1m]

Originally Posted by V.Narayan

Imagine if rest of the world imposes a 20% tariff on Microsoft, Google, Meta etc.

Sir, while I agree with everything else in the rest of your post, I think only China will be in any position to do something like this because they (might) have good home-grown equivalents of these. For a country like ours, what home-grown alternatives do we have for an OS, mobile OS, a productivity suite, search engine, etc.? We might end up putting the brakes on our own software/services industry with a move like that. I guess Europe is in a similar position in this case/for this class of product(s)?

[SmartCat]

I think I know why IT services are out of tariff ambit.

After all, tariffs are only applied on goods. To enforce tariffs, Govt has to just keep an eye on imports via shipping ports and airports.

But if an insurance company in USA signs a $500,000 deal with an Indian IT company, it cannot be "detected" because services are rendered digitally. Payments can be tracked, sure, but then US has to track every single overseas transaction. So even if tariffs are imposed on IT services, enforcement becomes dependent on voluntary disclosure by US companies.

[Samurai]

Originally Posted by SmartCat

Payments can be tracked, sure, but then US has to track every single overseas transaction.

This is lot easier to track than tracking the goods physically at port of entry.

In fact, RBI tracks all the payments coming into India. Which is why we have STPI to track forex paid to Indian IT companies. And we have to justify each payment to RBI by filing softex forms.

No, the real reason was mentioned by VN. When it comes to services, USA enjoys massive trade surplus. So, USA won't apply the logic used for the trade goods, where they have trade deficit.

[aniyo]

Originally Posted by DigitalOne

Modern manufacturing is no longer labour intensive in many sectors. The level of automation is more than 90% in factories like auto-sector.

Think about this - Japan or South Korea despite their ageing/declining populations are still able to churn out thousands of cars and electronic goods. How? Modern Tesla factories in China or Germany come up within a couple of years. How?

In fact, if you analyse deeply, this is the problem India is facing. There is capital investment in new factories but there is no corresponding labour increase. Maruti Suzuki is opening a new factory every 3-4 years but there is not proportionate employment increase. Even agriculture and construction are highly automated.

As an aside, my brother works in the food industry where the levels of automation are increasing to incredible (or alarming, if you prefer) levels. They are able to churn out meals for around 800 people daily with just handful of employees.

Only a few sectors like garments or leather are still labour intensive.

From 2007-10, I used to work for Bosch packaging machine division. Automation was quite big even then and it has gone up significantly. Even in 2007-08, a 150MT flour plant could be operated by less than 50 people, this is right from raw grain sorting, cleaning, grinding packing.
Automation will be a big thing in the future, I am sure 3D printing will become largely viable in next 15- 20 years

[maddy42]

Anyone watched the Death by China documentary on youtube or netflix? Its based on a book by Peter Navarro who is a senior counsellor for Trade and Manufacturing with Trump in this term.

[twincharger_gt]

Originally Posted by guru_max

So, from a trade balance perspective, this approach does make sense.

AFAIS, the reason for U.S being non-competitive in mass manufacturing is because of the nature of dollar being always overpriced. The reason for that is mainly due to the fact that it being the default currency for global trade there is always a demand for USD well beyond US shores. Infact, any QE intervention by the US Fed results in asset price bubbles in US and overseas stock exchanges. US cannot have it both ways while enjoying reserve currency status while still trying to keep USD low. Even in situations where US Fed printed dollars during Covid-19 or during the earlier Financial crisis the dollar does not depreciate like any other currency would. While there is an argument for US trying to decrease the deficit it should be really used to increase the exports via services as it has been doing . However, the spending always seems to outpace this increase which is the real problem . DOGE is fine when it targets spending, tariffs on goods may be very simplistic solution to a very complex problem

[vik99]

Originally Posted by am1m

…For a country like ours, what home-grown alternatives do we have for an OS, mobile OS, a productivity suite, search engine, etc.? We might end up putting the brakes on our own software/services industry with a move like that. I guess Europe is in a similar position in this case/for this class of product(s)?

Perhaps it is time to consider initiating a gradual shift to alternative, preferably local solutions. Not everything needs to move 100%, just enough to keep the tech giants on their toes.

In areas such as Computer and Mobile Operating Systems, Office Suites etc. the alternatives exist, or are not very difficult to develop. They probably won’t appear to be as user friendly to begin with given how accustomed we have all become to status quo.

Leaks/Declassified documents from the developed world have time and again revealed how foreign origin technology is weaponised against consumer nations. Now we have tariffs being weaponised against everyone including penguins!

[DigitalOne]

Originally Posted by V.Narayan

Imagine if rest of the world imposes a 20% tariff on Microsoft, Google, Meta etc.

Originally Posted by SmartCat

I think I know why IT services are out of tariff ambit.

This piqued my curiosity and also triggered memories of when I used to work in GST software for my previous employer. So, I dug a little deeper.

I have a paid Micrsoft OneDrive (100 GB) subscription and a Google Drive subscription. Here is how the Microsoft invoice looks like:





The thing to note is vendor/supplier of this service is "Microsoft Regional Sales Pte Ltd" headquartered in Singapore. It is not Microsoft, Seattle, US.

The Google mail for the Google Drive subscription shows something similar. My payment goes to Google Ireland, not to the US.



Both Microsoft and Google are charging GST which means the GST invoice would be reported to Indian authorities (GSTN) and invoices can be tracked. The regional sales offices of Microsoft/Google in Singapore/Ireland respectively may be paying royalties to their parent companies in the US but that cannot be tracked or taxed by Indian authorities.

In essence, we can put additional tariffs (on top of GST) for any import of services in the hope of hurting Microsoft, Google, or Oracle. But that would imply we are taxing all services from all countries. We cannot isolate the tariff just to US or US companies.

[Samurai]

I heard from a talking head on Barkha's Mojo Story that this may be Trump's version of Plaza Accord. Unlike Plaza accord, no one has to agree to sign the accord. But US will get to reduce their trade deficit. Then US wanted to cut down Germany and Japan, and this time the target is China.

Originally Posted by DigitalOne

Both Microsoft and Google are charging GST which means the GST invoice would be reported to Indian authorities (GSTN) and invoices can be tracked. The regional sales offices of Microsoft/Google in Singapore/Ireland respectively may be paying royalties to their parent companies in the US but that cannot be tracked or taxed by Indian authorities.

Since this is GST, you will be getting input credit. So it is not like tariff, which becomes input cost.

[DigitalOne]

Originally Posted by Samurai

Since this is GST, you will be getting input credit. So it is not like tariff, which becomes input cost.

Yes. This is GST is being paid just like for any other service and for which ITC can be claimed. That's why I said buying a service from Microsoft or Google can't be isolated from other service purchases.