Washington: Donald Trump has announced reciprocal tariffs on imports, reigniting global trade discussions. While the impact on India’s economy may be minimal, key sectors like textiles and chemicals must strategise to address potential risks stemming from this trade conflict.
US President Donald Trump’s recent declaration to impose reciprocal tariffs on imports has reignited discussions regarding global trade dynamics, notably its impact on India. This move, part of a broader agenda aimed at addressing trade imbalances, particularly with countries like China and India, signals an escalation in the ongoing global trade conflict.
Understanding Reciprocal Tariffs
Reciprocal and retaliatory tariffs are terms often used interchangeably, referring to taxes imposed by countries, aimed at matching increased duties by trading partners. A significant historical reference is the 2018 US tariffs on steel and aluminium, which prompted India to respond with increased tariffs on 29 American goods.
Motivation Behind the Move
The driving force behind Trump’s tariff plan is the substantial trade deficit the United States is facing, which includes a notable USD 35.31 billion deficit with India for the fiscal year 2023-24. By imposing tariffs, the administration aims to elevate the cost of imported goods and subsequently bolster domestic manufacturing and employment.
Impact on India’s Economy
The impact of these proposed tariffs on the Indian economy is expected to be limited, as indicated by S&P Global Ratings. The agency suggests that India’s economy, primarily driven by domestic demand, is less vulnerable to such tariffs due to its significant services export segment, which is unlikely to be targeted by the US.
Vishrut Rana, an Economist for Asia-Pacific at S&P Global Ratings, expressed that while other countries such as Vietnam, South Korea, and Taiwan could suffer more considerably due to their high trade surpluses with the US, India remains relatively shielded. He noted, “If we were to reimagine that scenario for the first Trump administration to unfold again, I think overall, the impact on India should be quite minimal.”
Nevertheless, key sectors such as textiles and chemicals do face potential risks from higher tariffs, indicating areas where Indian exporters may need to strategise more effectively in response to this unfolding situation.
Historical Context and Previous Tariffs
This proposed action marks a continuation of tariffs imposed during Trump’s first term. In 2018, the US introduced a 25 percent import duty on steel and a 10 percent duty on select aluminium products, leading India to impose its own tariffs on 28 US goods in retaliation. Interestingly, relations have since evolved; on July 3, 2023, the US lifted tariffs on steel and aluminium imports from India, reflecting potential shifts in trade policies.
Conclusion
As the situation develops, Indian industries, particularly in the textiles and chemicals sectors, may need to proactively assess and adapt their strategies to mitigate impacts from potential tariff hikes. While the Indian economy’s resilience is underscored by its domestic demand and services sector, understanding the broader implications of the US’s tariff strategy remains critical for stakeholders aiming to navigate the shifting trade landscape effectively.
Source: Noah Wire Services
