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India’s Foolish Doubling Of Textile Tariffs

The creation and or maintenance of a textiles industry has near mythical importance to certain development economists. History redoubles that for India. But the truth is that they’re a product, just like any other, and as such it’s better to buy them from foreigners if they can make them better/cheaper than you can. Comparative advantage does not disappear just because we’re talking about textiles. Indeed, David Ricardo’s basic explication involved cotton goods.

Given this tariffs upon them are a bad idea, the tariffs simply impoverish the people in the country imposing them. Thus this is a bad idea from India:

The government today doubled import duty on as many as 328 textile products to 20 percent to provide a boost to manufacturing of these items in the country. A notification to this effect was tabled by Minister of State for Finance Pon Radhakrishnan in the Lok Sabha.

The notification said it seeks to “increase customs duty on 328 tariff lines of textile products from the existing rate of 10 percent to 20 percent under Section 159 of the Customs Act, 1962”.

Increase in duties would give an edge to domestic manufacturers as imported products are currently cheaper. Increase in manufacturing activity will help create jobs in the sector, which employs about 10.5 crore people.

It’s entirely true that protecting those workers – and the relevant capitalists – from the competition created by cheaper foreign textiles will protect those jobs and profits. But it will be the Indian consumer who gets screwed, obviously. They’re paying higher prices for textiles, right, the very aim of the programme.

In what could be seen as a major relief for the textile industry, the Government has doubled the import duty on almost all forms of textile products ranging from fibre to apparel.

According to a notification issued by the Central Board of Indirect Taxes and Custom, there have been 45 changes and these include a change in specific rates as well as ad valorem rates. Though nothing has been said about the date from which the changes would be effective, it is believed that revised rates will come into effect from the date of gazette notification, which is July 16, 2018, as changes in indirect taxes come into effect immediately unless specified.

The import duty was earlier 10 per cent, which will now be 20 per cent.

That was just a month back, as we can see they’re very keen on this trade protection gig. Or, as we should call it, screw the consumer gig.

The development economics problem is that many have noted that the original industrial revolution started with textiles. Many countries have used it as a stepping stone, the textiles industry, to a manufacturing economy. The false logic then becomes that a country must go through a textiles phase otherwise they never will become a developed country. Thus we should have infant industry protection and screw the consumer for the greater good. This doesn’t work because it is indeed a screw the consumer plan, not the point of our having an economy at all.

India is of course even worse. Depends upon who you listen to but the British somewhere between outcompeted and deliberately killed off the Indian textiles industry in favour of the British machine made cloth. Thus, in part at least, Gandhi’s insistence that everyone should make some home spun just to show the Brits. That the Indian industry mechanised in the 1880s, that it thrived before Clive arrived, shows us a certain problem with that infant industry argument – infancy can take centuries. And the consumers are poorer all that time.

The basic point and purpose of these sorts of tariffs are to make the targeted goods more expensive in the domestic market. That’s why they’re a bad idea of course, it’s not a known aim of economic policy to make your own citizenry poorer.

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2 years ago

At least India produces textiles, Canadian retaliation on US tariffs included tariffs on orange juice

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