Question

“US administration has recently imposed tariff to the magnitude of 50%.”

In the light of given statement, explain the likely impact of this step on the exports of India.

Hint:

A tariff raises the price of imports. Indian goods become costlier in the US, so demand falls and exports of India fall.

Answer 1

Step 1: Understanding the Concept:
A tariff is a tax that a country puts on imported goods. It is paid by the importer in that country.
Here the US has put a 50% tariff on goods that come in from India.

Step 2: Effect on the price of Indian goods in the US:
The tariff adds half the value of the good as extra tax.
So Indian goods become relatively expensive for buyers in the US compared with US goods and goods from other countries.

Step 3: Effect on demand:
Buyers in the US move to cheaper goods. This happens because the demand for a good falls when its price rises.
So the demand for Indian goods in the US market falls.

Step 4: Effect on India exports:
Lower demand means Indian firms sell and ship fewer goods to the US.
Therefore the exports of India fall.
Sectors that depend heavily on the US market, such as textiles and gems, are hit the most.

Final Answer:
A 50% US tariff makes Indian goods costlier there, demand falls, and the exports of India are likely to fall.