Donald Trump has unilaterally imposed a tariff of 25% plus a penalty on Indian exports, citing its trade with Russia. While giving concessions to China, even though Chinese trade with Russia is far higher than that of India. Not only this, but the USA is also buying many critical items from Russia. In 2024, the US had a trade of $3.5 billion with Russia, and China's trade with Russia was about $240 billion in the same year. However, in the meantime, India and the USA are negotiating an interim trade deal, and this announcement has come amidst a series of negotiations!
The recent tariff imposition by Donald Trump on Indian exports seems like a strategic move rather than an abrupt decision. There are a few reasons which are forcing the USA to take such steps.:
Possible Reasons Behind the Tariffs
Pressure-building Strategy: The US is likely trying to gain more bargaining power in the ongoing interim trade deal negotiations with India. By imposing tariffs, the US is signalling that it wants significant concessions from India.Agricultural Market Access: India has been firm on protecting its agricultural sector, which is a key area of interest for the US. The tariffs could be a way for the US to pressure India into opening up its markets for American agricultural and dairy products. India has unexpectedly taken a very tough stand on the issue of agriculture, dairy and some metals and is not ready to give any space to any country in these categories. The USA is desperately looking for new markets for its agriculture and dairy products.
Shifting Economic Landscape: The US realises very well that the era of the US as the most powerful economy in the world is going to be over soon, maybe in a decade, and the export business of dollars wouldn’t continue unchallenged for long, and the status of global reserve currency is not sustainable in the long term. Not only BRICS but many other countries are also looking for alternatives to the US dollar. The tariffs might be an attempt to assert US economic interests and maintain its influence.
So this is not an abrupt announcement by Trump but a well-thought-out pressure-building strategy by the US administration so that the US may have more bargaining power and the upper hand in the ongoing interim trade deal. However, this might be a personal vendetta. India has indirectly declined any role of US President Donald Trump in the India-Pakistan Ceasefire.
Whatever Trump is doing, at face, may look very unfortunate and a huge setback for India. If one looks carefully at these, they are indeed negative developments for India in the short term. But if India plans and executes in the right direction for the medium to long term, it would prove to be a boon for India and the Indian economy. But India needs to be strategic rather than reactive, which India often has been in its whole history of thousands of years.
Opportunities for India
Despite the short-term challenges posed by these tariffs, India can turn this situation into an opportunity by:Focusing on Low-tech and Labour-intensive Products: India can capitalise on the gap left by China in the global market, particularly in sectors like textiles and manufacturing, where countries like Vietnam are gaining traction.
Creating a Conducive Ecosystem: By improving its business environment and investing in innovation, India can attract talent and investment, potentially reversing the brain drain and fostering new enterprises.
Strategic Planning: India needs to adopt a proactive approach, leveraging these challenges to drive long-term economic growth and development.
Sector-specific Impacts
Pharmaceuticals: The US has exempted pharmaceuticals from the tariffs, which is a significant relief for India's pharma industry. This exemption highlights the essential role of affordable generic medicines in public health, economic stability, and national security.Textiles: India's textiles sector is poised to gain from the tariffs, as competing nations like Vietnam and Bangladesh face higher tariffs, making India a more attractive sourcing destination for US buyers.
Steel and Aluminium: The US has exempted steel and aluminium articles from additional reciprocal tariffs, shielding Indian exports from extra costs. However, industry representatives caution that the global trade environment remains challenging, with a risk of increased dumping in India.
Electronics: India seems to be in a better position than neighbouring China and Vietnam in the electronics export sector, as the newly imposed tariffs are far lower for India than for its competitors.
Way Forward
India faces three broad strategic choices:Short-term Pause, Long-term Continuation: India can maintain the current "holding pattern" in defence deals with the US, pausing announcements without formally cancelling deals, until tariff negotiations yield results.
Accelerated Diversification towards Non-US Suppliers: India could shift new contracts towards France and Israel, reducing dependence on US systems, but potentially complicating interoperability with US forces.
Partial Realignment with Russia: India could accept selective offers from Russia, like the S-5,500 air defence system, to balance perceived over-reliance on the West, but this carries risks, especially given Russia's constrained production capacity.
Potential Losses and Concerns
India could face an export loss of up to $33 billion and a 20-basis-point dent to GDP if a comprehensive trade deal with the US is not concluded soon. Key sectors like MSMEs, pharmaceuticals, textiles, auto components, and engineering goods may face pressure due to the tariffs.Government Response
Trump has instructed Meta, Google and other companies to hire fewer Indians. If India creates the right ecosystem here in India, the brain drain which costs the Indian exchequer that happens every day would reverse completely, which would lead to new enterprises in India. Also, India must focus on low-tech and labour-intensive products to become a major exporter to other countries, as China is gradually being replaced by Vietnam, and India can fit that space very easily.The Ministry of Commerce & Industry has stated that the government is "studying the implications" of the tariff announcement and remains committed to concluding a fair, balanced, and mutually beneficial trade agreement. The government will take all necessary steps to protect farmers, entrepreneurs, and MSMEs.
Industry Perspectives
Industry leaders have expressed concerns about the impact of the tariffs on Indian exports, particularly in sectors like textiles and electronics. However, some have also noted that India can leverage this situation to its advantage by diversifying its exports and strengthening its domestic value chains.In conclusion, the recent tariff imposition by the US on Indian exports presents both challenges and opportunities for India. While the short-term impacts may be significant, India can adopt a proactive approach to drive long-term economic growth and development. By focusing on low-tech and labour-intensive products, creating a conducive ecosystem, and engaging in strategic planning, India can navigate this shifting landscape and emerge stronger.
Rajeev K Upadhyay
No comments:
Post a Comment