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The specter of reciprocal tariffs imposed by the United States, under the direction of former President Donald Trump, is causing considerable anxiety within Indian industry and among government officials. The uncertainty stems from Trump's repeated threats to levy these tariffs on countries with which the US maintains a trade deficit, a list that potentially includes India, despite ongoing negotiations for a more comprehensive trade agreement. This situation has plunged the Indian business community into a state of apprehension, with many companies urgently seeking government intervention and protection against the potential adverse effects of these tariffs. The core issue revolves around Trump's assertion that the US faces an unfair trade landscape, characterized by low tariffs on imported goods while other nations, including India, impose significantly higher duties and barriers on American products. He argues that this asymmetry contributes to a substantial trade deficit, purportedly reaching a staggering USD 1 trillion, which, in turn, negatively impacts American industries and workers. The concept of reciprocal tariffs, in this context, implies that the US would raise its tariffs on imports from countries that maintain higher tariff rates on American goods, aiming to level the playing field and reduce the trade deficit. However, the implementation of such tariffs could have far-reaching and complex consequences for global trade, potentially disrupting established supply chains and creating new economic challenges for both the US and its trading partners, particularly India. The Indian government faces the daunting task of navigating these uncertainties, balancing the need to protect domestic industries with the desire to maintain a healthy and mutually beneficial trade relationship with the United States. The situation is further complicated by the fact that India and the US are currently engaged in trade negotiations, making it imperative for both sides to avoid taking any actions that could jeopardize these discussions or escalate trade tensions. The potential imposition of reciprocal tariffs could significantly alter the dynamics of the trade relationship, potentially leading to retaliatory measures and further economic disruption. The article highlights the views of GTRI founder Ajay Srivastava, who argues that the actual import tariffs on US exports to India are significantly lower than what is often claimed. Srivastava believes that a fair trade approach could enable Indian industries to continue exporting to the US with minimal disruptions, fostering a more balanced and stable trade relationship. He also emphasizes that trade involves a complex interplay of diverse products, making it difficult to assess reciprocity based solely on overall trade balances. For instance, India may be a major exporter of a particular product to the US, while the US is a key exporter of another product to India. Therefore, a more nuanced and product-specific approach may be necessary to address concerns about trade imbalances and ensure a level playing field for both countries.
The economic relationship between India and the United States is substantial. The US is India's largest trading partner, accounting for a significant portion of India's total goods exports, imports, and overall bilateral trade. The article states that the US accounts for approximately 18% of India's total goods exports, 6.22% of its imports, and 10.73% of its bilateral trade. Despite this robust trade relationship, the US maintains a trade surplus with India, meaning that it exports more goods to India than it imports. In 2023-24, this surplus amounted to USD 35.32 billion, a figure that has been steadily increasing over the past few years. This trade surplus is a key factor driving the potential imposition of reciprocal tariffs, as the Trump administration views it as evidence of an unfair trade relationship. The article raises a crucial question: what is the magnitude of reciprocal tariffs that could be imposed on Indian exports to the US? Unfortunately, the answer remains unclear, as the specific methodology for applying these tariffs has not been defined. The tariffs could be applied at various levels – the product level, the sector level, or even the country level – each of which would have different implications for Indian exporters. A country-level tariff would involve a uniform tariff on all Indian exports to the US, while sector-level tariffs would target specific industries. The lack of clarity surrounding the application of these tariffs adds to the uncertainty and anxiety within the Indian business community, making it difficult to assess the potential impact and plan accordingly. Furthermore, the article explores various scenarios for the potential impact of reciprocal tariffs, based on analyses conducted by the think tank GTRI. These scenarios include a uniform tariff on all Indian exports, separate tariffs for agriculture and industry, and sector-level tariffs. The analysis reveals that the impact of these tariffs could vary significantly across different sectors, with some industries facing substantial increases in import duties while others remain relatively unaffected. For example, the agricultural sector could be particularly vulnerable, with certain products facing tariff differentials of over 30%. The industrial sector, on the other hand, may face a more moderate impact, with tariff differentials generally lower than those in agriculture. However, even within the industrial sector, certain industries could be more heavily affected than others.
A deeper dive into specific sectors reveals the potential consequences for Indian exports. In agriculture, the fish, meat, and processed seafood sector stands to be severely impacted, with exports worth USD 2.58 billion facing a potential tariff differential of 27.83%. This would significantly reduce the competitiveness of Indian shrimp, a major export item, in the US market. Processed food, sugar, and cocoa exports, valued at USD 1.03 billion, would also struggle with a 24.99% tariff increase, making Indian snacks and confectionery more expensive and less attractive to American consumers. Other agricultural sectors, such as cereals, vegetables, fruits, and spices, face a smaller but still significant tariff differential of 5.72%, potentially impacting rice and spice shipments. Dairy products, edible oils, and alcohol, wines, and spirits also face substantial tariff hikes, further exacerbating the challenges for Indian agricultural exporters. In the industrial sector, the pharmaceutical industry, India's largest industrial export, faces a 10.90% tariff differential, potentially increasing the cost of generic medicines and specialty drugs in the US. This could have implications for both Indian pharmaceutical companies and American consumers who rely on affordable medications. Diamonds, gold, and silver exports, worth USD 11.88 billion, would attract a 13.32% tariff hike, raising jewellery prices and reducing competitiveness. Electrical, telecom, and electronics exports, machinery, chemicals, textiles, rubber products, and ceramic, glass, and stone products all face varying degrees of tariff increases, potentially impacting Indian exports across a wide range of industries. It's important to note that some sectors will experience minimal or no impact from the reciprocal tariffs, as the US already imposes higher duties on these products. Ores, minerals, and petroleum, as well as garments, fall into this category. The article concludes by highlighting the complexity of calculating the overall impact of these tariffs, emphasizing that it is not a simple exercise. The varied tariff differentials across different sectors and products, coupled with the uncertainty surrounding the application of these tariffs, make it challenging to accurately assess the potential economic consequences. In conclusion, the potential imposition of reciprocal tariffs by the US poses a significant threat to Indian exports and the overall trade relationship between the two countries. The lack of clarity surrounding the application of these tariffs, coupled with the varied impact across different sectors, creates considerable uncertainty and anxiety within the Indian business community. The Indian government faces the difficult task of navigating these challenges, balancing the need to protect domestic industries with the desire to maintain a healthy and mutually beneficial trade relationship with the United States.
Source: Explainer: Possible impact of Trumps reciprocal tariffs on India