Impact of Trump's "Liberation Day" Tariffs
American President Donald Trump's "Liberation Day" is marked as a pivotal moment in the globalisation era, highlighting a significant shift in American political leadership away from global dominance. This move involves the introduction of comprehensive "reciprocal tariffs" on all trading partners, which are more extensive than anticipated.
Details of the Tariffs
- The base tariff of 10% across all imports will be effective from April 5.
- Individual reciprocal tariffs will begin on April 9, with specific rates for each trading partner:
- European Union (EU): 20% tariff.
- India: 27% tariff, with an exemption for pharmaceuticals.
- China: Increasing to a total of 54% after the new 34% reciprocal tariff.
- Japan and South Korea: Over 20% tariffs.
- Vietnam: 46% tariff on imports.
Rationale and Criticism
Trump's policy is based on the belief that the US faces unfair trade practices, highlighted by a goods trade deficit of $1.2 trillion in 2024. The tariffs are intended to encourage the purchase of American goods, yet mainstream economists challenge this logic, as the US holds a surplus in services. A stronger dollar resulting from a reduced trade deficit could negate this advantage by impacting exports, thus potentially slowing global growth.
Implications for India and Global Trade
- India's 27% tariff is lower than some Asian economies, yet future trade negotiations will be crucial.
- India must reduce tariffs and trade restrictions to maintain access to the US market.
- This period could be advantageous for India to accelerate trade agreements with the EU and the UK.
Overall, these changes could harm the US and global economies in the medium term. India needs to adapt swiftly to mitigate damage and leverage potential opportunities arising from the current global trade uncertainties.