Sukumar Sah
The old adage – ‘When America sneezes, the world catches a cold’ – rang true as US President Donald Trump’s announcement of reciprocal tariffs sent shockwaves through global markets. By imposing tariffs roughly equal to half of what its trading partners charge the United States, President Trump sparked a ripple effect that could upend established supply chains and destabilise economies worldwide.
One of the impacted nations, India, which was slapped with a 26 per cent tariff, is now confronted with the challenge of seeing its key export sectors come under pressure.
Speaking at a White House event on April 2, Trump said, “India, very, very tough. Very, very tough. The Prime Minister just left, and he’s a great friend of mine, but you’re not treating us right. They charge us 52 per cent.” His “good personal ties” with PM Modi did not stand in his way of imposing a steep tariff rate on India.
The Indian official response to President Trump’s action was one of restraint. “It is a mixed bag and not a setback for India’’ said a Government official, while exporters took solace from the fact that the tariff was relatively lower compared with India’s competitors.
A daunting task
India, which has enjoyed a relatively robust trade partnership with the US, now faces the daunting prospect of seeing its key export sectors hammered by increased costs and reduced competitiveness in the American market.
The country’s IT sector – with industry giants like Tata Consultancy Services (TCS), Infosys, and Wipro – could bear the brunt of the increased tariffs. As one of India’s leading export contributors, the sector’s competitiveness in the US market may be compromised, affecting contract negotiations and market share.
The pharmaceutical industry, with US exports valued at about $24 billion, also faces potential setbacks. The increased tariff could result in higher prices for Indian pharmaceutical products, making them less attractive to American buyers and threatening profit margins.
Similarly, the textiles and apparel sector, a vital part of India’s export portfolio, could lose its edge in the American market. Higher tariffs may reduce demand and revenue, forcing Indian manufacturers to rethink their strategies.
Additionally, exports of agricultural products, including spices, rice, and tea, could become less competitive due to higher prices.
US-China dynamics
The tariff strategy doesn’t just hit India. Countries like Vietnam (46 pc), Taiwan (32 pc), Japan (24 pc), South Korea (25 pc), and Thailand (36 pc) are also assessing the fallout. The European Union, facing a 20 per cent tariff, is bracing for strained trade dynamics with the US, prompting a reevaluation of economic strategies.
In the backdrop of ongoing US-China trade dynamics, Trump clarified during his White House speech that if China imposes a 67 per cent tariff on American goods, the US will respond with 34 per cent. The move underscores America’s intent to address perceived imbalances in trade partnerships.
It is to be noted that India has not been passive amid all these developments. Commerce Minister Piyush Goyal visited the US to discuss trade relations, focusing on market access, reducing barriers, and integrating supply chains.
Both nations committed to doubling bilateral trade to $500 billion by 2030 under the ‘Mission 500’ initiative.
Moreover, India took steps to address US concerns by repealing the 6 per cent ‘Google tax’ on online advertisements. Additionally, India has proposed reducing tariffs on several US agricultural products.