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Trump’s Reciprocal Tariffs
Context
US President Donald Trump declared April 2 as “Liberation Day” and announced sweeping tariffs under a new policy of “reciprocal tariffs”—a base tariff of 10% on all imports and country-specific additional tariffs based on what the US perceives as unfair trade practices. This move is driven by the US’s longstanding trade deficit—about USD 1.2 trillion.
Why is this significant?
|
Country-wise Tariff Snapshot |
||
|
Country |
Tariff Imposed |
Share in US Trade Deficit |
|
Cambodia |
39% |
1% |
|
Bangladesh |
37% |
<0.5% |
|
China |
34% |
25% |
|
EU |
20% |
20% |
|
India |
26% |
Moderate |
|
UK, Brazil |
10–20% |
US enjoys trade surplus |
- This marks one of the most aggressive shifts toward protectionism since the Great Depression-era Smoot-Hawley Tariff Act.
- It challenges the foundations of multilateral trade, especially under the World Trade Organization (WTO), and signals a “go-it-alone” approach in US trade policy.
Impact on India
- The United States (US) is the top destination for India’s exports, accounting for 18% of the total cargo shipped.
- Electric machinery and equipment goods, including mobile phones, are the top exports from India, followed by pearls, gems and jewellery, pharmaceutical products, nuclear reactors and equipment, and petroleum products.
- Impact on Key Sectors
- Electronics and Mobile Phones: India’s mobile phone exports, particularly due to the assembly of iPhones, have grown steadily and now stand at around $6 billion. However, many of the components used are imported from tariff-hit countries like China and Taiwan. This could affect margins and growth.
- On the positive side, the higher tariffs imposed on Vietnam and Thailand may open a window for India to attract more electronics manufacturing investment.
- Gems and Jewellery: This sector forms about 13% of India’s total exports to the US. It is expected to be among the most affected due to the direct impact of the 27% tariff. The industry may need to focus more on value addition and product differentiation to stay competitive in the US market.
- Textiles and Apparel: This is an area where India could benefit. Countries like Bangladesh, Vietnam, and Sri Lanka — all major competitors — now face higher tariffs. This could provide an opportunity for Indian exporters to gain market share, provided they focus on improving quality, scale, and timely delivery.
- Pharmaceuticals: At present, pharmaceutical products have been exempted from the new tariffs. India is one of the largest suppliers of generic medicines to the US, and this exemption is a relief for the sector. However, experts caution that sector-specific tariffs could still be introduced in the future.
- Auto Parts, Steel, and Aluminium: These products will face a 25% tariff. This will affect several Indian manufacturers, though those with production facilities in countries like Mexico — which enjoys a free trade agreement with the US — may be better positioned to manage the impact.
Economic Issues
- Higher Prices and Inflation in the US: Tariffs mean higher import prices. Unless the US dollar strengthens sharply, consumers will bear the cost, leading to inflation.
- Slower Global Growth: Tariffs act like friction in trade. They reduce volume, distort supply chains, and dampen investor sentiment.
- Retaliation Risks: If affected countries impose counter-tariffs, a full-blown trade war could erupt, further hurting global economic prospects.
- Stagflation in the US: The worst-case scenario is stagflation—rising prices (inflation) combined with stagnant growth. This is politically and economically damaging.
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