US Tariffs and Global Trade Dynamics
The US administration under President Donald Trump has imposed significant tariffs, aiming to rectify a $1.2 trillion goods trade deficit. These tariffs, ranging up to 99%, are intended to boost local manufacturing but risk igniting a global trade war.
Impact on Trading Partners
- India is subject to a 27% reciprocal levy starting April 9, which is lower compared to its regional competitors like China (34%), Vietnam (46%), and Indonesia (32%).
- Pharmaceutical exports from India, valued at $8 billion, are exempted from these tariffs.
- Marine products, machinery, medical devices, and gems and jewellery are notably affected.
- India hopes for a short duration of these tariffs, anticipating a Bilateral Trade Agreement (BTA) with the US.
Market Reactions and Economic Implications
- The US tariffs have led to global market instability due to fears of retaliatory tariffs.
- The Sensex and Nifty experienced minor declines of 0.42% and 0.35% respectively.
- India's projected economic growth of 6.5% for the current year could be reduced by 30-60 basis points.
Calculation and Justification of Tariffs
- The tariffs were calculated based on the trade deficits and import levels with each country.
- India's average tariff noted at 52% was contrasted against the US's 26% "discounted" tariff.
Global and Domestic Responses
- Global leaders, including the EU, have expressed concerns about the rise of protectionism and its potential global impact.
- Indian officials are optimistic due to ongoing BTA negotiations which could mitigate tariff impacts.
- India aims for a $500 billion bilateral trade target with the US by 2030, from the current $191 billion.
Sector-Specific Impacts
- The shrimp industry, a key export to the US, will face increased competition due to tariffs, affecting its competitiveness against countries like Ecuador.
- The carpet industry may lose market share to Turkey due to increased duties.
- The steel sector could see increased low-cost imports as impacted countries re-route shipments.
- Textiles, electronics, and semiconductors might benefit as competitors face higher duties.
Future Prospects
- India's key exports to the US include drug formulations, telecom instruments, precious stones, and garments.
- Efforts to enhance export efficiency and value addition are crucial in mitigating tariff impacts.
President Trump's strategic tariffs aim to address historical trade imbalances, emphasizing the longstanding disparity in import duties between the US and its trading partners, including India.