Mumbai: The signing of the reciprocal tariff bill by President Trump on Friday morning marks a pivotal shift in global trade dynamics, with India emerging as one of the most significantly impacted nations. For India, the implications are profound, particularly for its export-driven economy.
India’s average tariff rate of 9.5% on US exports, as against the latter’s 3% tariff on Indian goods, gives an idea of the trade imbalance. The US has long been one of India’s largest trading partners, with bilateral trade reaching $72 billion in the first seven months of 2024. Indian exports to the US, including pharmaceuticals, textiles, gems and jewelry, have seen substantial growth. However, the new tariffs threaten to disrupt this relationship, with far-reaching consequences for India’s economy.
Implications For India
1. Export Sector Vulnerability: India’s export-oriented industries, particularly textiles, apparel, and agricultural products, are likely to face the most immediate impact. These sectors, heavily reliant on the US market, could see their competitiveness eroded by higher tariffs.
2. Consumer Impact: Higher tariffs on US imports could lead to rising prices for Indian consumers. Key imports such as electrical machinery, automobiles, and pharmaceuticals may become more expensive, straining household budgets and potentially dampening consumption.
3. Trade Deficit Concerns: While India has sought to reduce its trade deficit with the US by increasing imports of American energy and defense products, the reciprocal tariffs could complicate these efforts. India is not without options. The government has already signaled its willingness to engage in discussions with the US to address trade and tariff issues.
Several Strategies Could Help Mitigate The Impact:
1. Tariff Reductions: India could consider lowering tariffs on over 30 products, particularly in sectors where US imports are significant.
2. Diversification Of Trade Partners: Reducing reliance on the US market by diversifying export destinations could cushion the blow of tariffs.
3. Boosting Domestic Manufacturing: The “Make in India” initiative could gain renewed momentum as higher tariffs on imports encourage domestic production. The reciprocal tariff policy extends beyond bilateral relations; it has the potential to reshape global trade dynamics. Emerging markets like India, Argentina, and Southeast Asian nations are expected to bear the brunt, but the ripple effects could extend to developed economies as well.
The policy risks triggering retaliatory measures, fragmenting global trade, and slowing worldwide economic growth While the immediate impact of reciprocal tariffs may be challenging, the long-term implications are more nuanced.
A more balanced trade relationship with the US could incentivise structural reforms in India’s economy, such as reducing import dependency and fostering innovation in key sectors. The policy could accelerate the realignment of global supply chains, positioning India as a key player in industries like pharmaceuticals and technology