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India’s second 1991 Moment
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Context
On April 2, 2025, President Trump declared "Liberation Day," announcing a 10% baseline tariff on all imports and higher "reciprocal" tariffs targeting specific countries, including a 26% tariff on Indian goods. This move, invoking the International Emergency Economic Powers Act (IEEPA), aims to address the U.S. trade deficit and perceived unfair trade practices. ?
Strategic Underpinnings of Trump's Tariff Policy
- Invocation of National Emergency Powers: President Trump utilized the IEEPA to impose a universal 10% tariff on imports, citing a national emergency due to persistent trade deficits and unfair trade practices by other nations. ?
- Targeted Reciprocal Tariffs: Beyond the baseline tariff, higher rates were imposed on countries with significant trade surpluses with the U.S., such as a 26% tariff on India and up to 49% on Cambodia. ?The Economic Times+2PBS:
- Political and Economic Motivations: The tariffs are seen as a strategic move to counter China's long-term economic ambitions and assert U.S. economic sovereignty, rather than purely economic measures to balance trade.?
Implications for India
- Temporary Suspension of Additional Tariffs: The U.S. has temporarily suspended the additional 26% tariff on Indian goods for 90 days, until July 9, 2025, providing a window for diplomatic negotiations. ?
- Opportunity for Trade Reform: This pause offers India a chance to reassess and potentially reform its trade and foreign investment policies, which have been criticized for being restrictive and deterring foreign direct investment.?
- Demographic and Economic Potential: India's growing, educated workforce positions it as a viable alternative to China in global supply chains, making trade liberalization and economic reforms more pressing.?
Prospects of India-U.S. Bilateral Trade Agreement
- Ongoing Negotiations: India and the U.S. have agreed on the terms of reference for the first phase of a bilateral trade deal, aiming to finalize it by late 2025. ?
- Ambitious Trade Targets: The goal is to increase bilateral trade from the current $191 billion to $500 billion by 2030, indicating a significant deepening of economic ties. ?
- Strategic Alignment: A successful trade agreement could serve as a model for India's trade relations with other major economies, such as the UK and EU, and solidify its role as a key player in the global economy.?
Practice Question
Q. Discuss the implications of the recent U.S. tariff policies on India's trade and economic strategy. How can India leverage this situation to reform its trade and investment policies and strengthen its position in global supply chains?
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