Indian Economy

[prasen9]

The whole government's policy pre-Narasimha was protectionist. Not only cars, foreign companies were driven out. Corruption, perhaps. But, I think it was rank bad policy and thinking. Some in the Congress really thought that by keeping foreign companies out, we would develop our own technologies and be great. But with thinking like, if it runs and sells, and we have a monopoly and are making good money, why bother innovating, Hindustan Motors (and its Ambassador car) dug their own grave. The government's protectionist policies extended its lifetime by a couple of decades. I know because my uncle worked there and we lived maybe 10km from it. This was the same across all industries, I think.

[Kumar]

Prasen what are ur thoughts about impact on indian economy with ongoing tariff.. i am pretty sure, trump will put some tariff on some of india’s products (and/or services)..

[Atithee]

Prasen what are ur thoughts about impact on indian economy with ongoing tariff.. i am pretty sure, trump will put some tariff on some of india’s products (and/or services)..

Kumar, good to read your post. Who put a tariff on your posts?

[prasen9]

I will have to research a few more things about impact on the Indian economy. PKB is a better person with knowledge of the economy than I am. But, this is what Greg Mankiw, Bush the war criminal's economic advisor - someone I respect from the other side of the political spectrum posted.

It is best to say that tariffs reduce productivity because they prevent the international marketplace from allocating resources to their best use. Lower productivity means lower real incomes. Lower real incomes could take the form of either (1) a higher price level for given nominal incomes or (2) lower nominal incomes for a given price level. Whether (1) or (2) occurs depends largely on monetary policy.

When Trump critics say that tariffs increase inflation, they are implicitly assuming case (1). That case may be the more likely one, but it is not necessarily the way things will play out.

It would be more accurate for Trump critics to say that the tariffs will reduce American living standards (as well as living standards abroad) without invoking the word "inflation."

From: Tariffs and Inflation

It is great to see you back posting. BTW, the answer to our Akshar or Jadeja in ODIs is both. So, we need not have had those debates. We only needed a spinning pitch like Dubai's.

[prasen9]

I will tell you what I know. India has tariffs of 12-17% on many imports ranging up to 100% for bourbon, 40% for motorcycles, etc. I think those should be lowered and the artificial propping up of the rupee should be eased. Not abruptly but slowly. In the long run that would be better.

Generally, tariffs will fracture markets into silos. We should look into lowering our tariffs and signing free trade deals with other countries to expand the market for our products. Don't know if we are there yet such that our industries can take non-tariff competition but if judicously done that could help us (India).

When people cannot sell their steel to the U.S., we can get cheaper steel in the market. That may actually help India's industries that use steel. India will be forced to cut tariffs much more urgently than our lackadaisical government does. That may actually be a good thing too in the long run making things cheaper to buy in India and thus spurring businesses that depend upon import. More businesses that use steel to make products may prop up.

Our exporters to the U.S. will be hit but I don't know how to compute the overall impact.

More importantly, the global economy will be hit. Every country will be worse off if we partition the world's market into smaller pieces. That will impact demand, etc. of our exports. So, overall, I think everyone including us will be worse off.

Here is an article discussing some of it: Article

If on the other hand, the Trump retaliation forces countries across the world to lower tariffs eventually and when things stabilize we have fewer tariffs worldwide, then this disruption and cost will be worth it. Barriers to trade will be lowered overall. Let us see how the world reacts to the Trump reciprocal tariffs.

On yet another hand, though we have partially free trade, we have very little free movement of people. So, people's jobs will be gone to another country but you cannot move there. You are left to be hungry and die ... and those that are left to vote for more populist scammers who promise fixing the ills by waving a magic wand ... even though you may know that the guy is scamming the world, you vote for the guy because you have nothing to lose ...

I think the Nazis are going to come back in Germany. The fascists are already there in Italy. And, they will gain more power in France soon surely. Austria barely kept them out this time. Netherlands has had their fundamentalists gain. I expect these fascists be in power in Europe in the next five years ...

[Kumar]

Well I am just lurking nowadays..too lazy to post I guess. Also jumped off the cricket bandwagon, i even forgot the champions trophy final was going until i saw a whatsapp message.

I personally feel that tariffs can be beneficial if u want to curb spending on luxury goods.. so those tariffs on bourbon, yes we should absolutely keep them. again that is my personal belief as i don’t like wasteful spending. Then i am a big hypocrite as well.if my business/ livelihood is dependent on that, i would probably not mind certain exemptions.

Isn’t it a interesting paradox. Travel has never been easier in human history, but migration is never more harder. Do u believe that unrestricted migration will be beneficial?

[prasen9]

Will answer your questions later.

There is nothing wrong in luxury spending. If someone buys more bourbon or mercedes or whatever, the local economy gains. People transport it, sell it, maintain it, etc. Let them do so.

The only reason to tax something a lot more if it has a social evil. If people are drinking bourbon and killing people by driving, then by all means tax alcohol - all alcholo, not one product to shield whoever in India makes the substitute drink and give them a profit by having monopolies, protected markets, etc.

I am all for high tariffs on petroleum and no subsidies. Cigarettes. And, these days, sugar and sugar products at least in the cities. Etc. The so-called Pigouvian taxes are good taxes.

[prasen9]

Isn’t it a interesting paradox. Travel has never been easier in human history, but migration is never more harder. Do u believe that unrestricted migration will be beneficial?

Any change makes losers and winners. However, unrestricted migration will be beneficial to humanity. Diversity of ideas creates better products. With countries preserving their culture, language, rules, etc. The onus is on the migrator to adjust. Also, genetic mixing is better for the human race ... etc.

But, this is a dream that is not going to happen. All animals are territorial, humans included.

Is migration really harder? I will check. I think not.

Update:

In the latest international migrant estimates (dated as at mid-2020), almost 281 million people lived in a country other than their country of birth, or about 128 million more than 30 years earlier, in 1990 (153 million), and over three times the estimated number in 1970 (84 million).

from Article on numbers by the years - immigration

[Kumar]

Agree with your thought on tariff on alcohol, tobacco.. i would also tax personal vehicle like cars at a very high rate.. india does not have a infrastructure to support cars..

As to the migration becoming difficult , I was thinking about going forward in future.. the migration will be restricted.. i agree that countries are becoming more isolationist.. this is a easy and populist position.

[prasen9]

We will see. Germany, for example, does not have the population growth rate to support its aging population. That is why a right-wing (by German standards) chancellor like Merkel allowed in the Syrians - a million of them. Germany has always had guest workers - initially from Turkey, then from Eastern Europe, etc. And, the demagogues have always blamed the guest workers when there is a recession. However, propaganda is not reality. So, in the short term, the AfD may be able to kick out a lot of migrants especially if it operates extra-judicially like Trump, but, in the long-run the country will have to find support for the aging population - or they will really suffer (possible).

[arjun2761]

While fair trade works, the distorted trade like that done by China is not equally beneficial to all. Not sure about the effectiveness of the Trump tariff model which seems somewhat arbitrary but while idealized fair trade works for most, distorted trade isn't the same. Ideally, the US should just withdraw from the WTO and form bi-lateral or multi-lateral trade agreements that it needs.

Same with migration. Unrestricted migration isn't necessarily beneficial to the wealthier country. If there is a population shortage, there are plenty of ways of dealing with controlled migration where you import the skills and talent that you need for the time that you need it. An extreme (aka exploitative) example of that is what the middle east countries do.

I believe most of Europe regrets the unrestricted migration encouraged by Merkel as does most of the US about the unrestricted surge from the Southern border. In addition, there are other ways of dealing with population shortage, for example, by increasing productivity using automation and AI.

[prasen9]

Do you have any evidence of your claim that the surge from the south in the U.S. was "unrestricted"? Seems like from Trump's propaganda machine. All U.S. laws were followed and severe restrictions were put on people from the Latin American countries. The Ukrainians on the other hand flowed in almost unrestricted with their applications processed in a day, etc. but even in their case there were restrictions etc.

I agree that Europe regrets the immigration surge that happened after the Syria war but a lot of that is due to the populist right's propaganda to blame somebody. The Germans blamed the gastwerker's from Turkey for their last recession when that was due to structural problems, Iran oil crisis, etc. Europe does not have as much innovation and has an aging population. Its automobile market is slow and is being undercut by electric vehicles, where it did not invest as much in, etc. The Syrians are not causing Germany's auto industry to lose money.

A tariff is a tax on people and fragments markets. While I agree that extreme subsidies and dumping by countries like China distorts markets, if someone else is subsidizing my bill, why should I not take the money? In most cases, random tariffs like those designed by both China and Trump do not work for their people and their economies. I understand that extreme subsidies and tariffs or closing off of markets are a means of protectionism to cater to public sentiments. The economics of tariffs is very clear. It reduces efficiencies of the market but preventing competition. Yes, a totally free market is not sustainable but as close to it is the best for the world economy. That is what the science of money (economics) work says. The key is to figure out how to make it politically viable, because while it is better for more the loser tries to randomly re-engineer the market by tarrifs, etc.

I agree with the second paragraph fully.

While productivity can be increased by technology, at least until now, these tools are not paying the taxes that are required to support the older population. So, at this point, it is not a viable solution. In 10 years, maybe ...

[Kumar]

hink moving manufacturing from US to china was a win-win.. US consumers got products at very cheap price , while china’s economy benefitted. In fact i think there is lot more benefit to countries like US where the cost will be much higher considering the environment regulations. I was talking with a friend who said their company makes a product that cost double of what chinese make and does not last as long(because they are forced to use a method that meets emission standards). If i was working in that company i would be rooting for 100% tariff and probably lax emission standards. I have always felt that things are never black and white, is it because I am an hypocrite?

There are probably some concerns where countries like china could hold US to ransom if they are the only supplier.. not sure how US can address that.. May be identify such industries that are critical for their security and have plan of action..

Why does US not have a guest worker program for blue collar workers like H1B ? Would that not be a win-win(granted the cost will still go up for US consumers)..

[arjun2761]

hink moving manufacturing from US to china was a win-win.. US consumers got products at very cheap price , while china’s economy benefitted. In fact i think there is lot more benefit to countries like US where the cost will be much higher considering the environment regulations.

This is a short sighted view. While China has benefitted continuously at all levels, the US hasn't benefited at many levels. The US consumer has gotten lower prices and that is a benefit. However, US has also lost a lot of jobs because China is a effectively a closed and distorted market with respect to anyone else selling into China, so the US economy has lost jobs due to this one-sided trade. Jobs and local creation of products and services have the effect of the money generated being recirculated within the economy many times a year, so the economic activity multiplier is enormous.

As an example, if a CN good worth $100 is sold in the US, the US retailer keeps only $20 and that recirculates 4 times within the US economy to create say $80 of economic activity (by the retailer buying services or the sales guys spending their earnings and so on). The $80 that goes to CN creates $320 of economic activity. So, even beyond the security concerns of losing critical capability, the economic impact is multiplied many times over in favor of the selling country over the consuming country. Now, if the trade was balanced than this effect would have canceled out but with respect to China it isn't. Longer term, the US will benefit from decoupling from China.

[srini]

I completely agree with Arjun's point about distorted trade of China. @Prasen, China doesn't subsidize the bill "For ever", it only does so until global supply chains shift their balance towards Chinese manufactured good,and the local companies in the process will die a natural death and then Chinese companies start increasing the prices enjoyng their monopoly. There are several examples of Chinese dumping like stray chinese manja used in Kite flying slitting throats of several children and bike riders in India, and toys like Fidget spinners marketed as anxiety relievers actually work the other way around, and most of the Chinese production juggernaut depends on exporting toxic,health degrading alternatives to the genuine products ex : Cinnamon Vs Cassia (also called Chinese Cinnamon).I can go on and on about such products but to summarize "Just because something is made available cheaper may not necessarily be cheap in the long run" due to the cost we incur on health by consuming such stuff.All such "unrestricted dumping" not only shifts the trade balance in Chinese favour, but is hazardous to public safety and health. So it's better to realize there is no such thing as "FAIR" trade and negotiate separate mutual trade agreements with countries case by case giving the local concerns of health,safety and employment intrests paramount importance. Fenatyl drug poisioning can never be accepted as Free and Fair trade!