US-India Trade Relations and Tariff Implications
In a bid to rejuvenate domestic manufacturing and job creation, the US president has revitalized his promise to "Make America Great Again" by focusing on tariffs as a significant tool. This policy move has had substantial ramifications on US-India trade relations.
Early Diplomatic Initiatives
- The Indian Prime Minister's visit to Washington marked the beginning of bilateral trade discussions.
- India took initial steps to facilitate trade talks by reducing import duties on items like bourbon and eliminating the equalization levy, which were points of contention for the US.
- The US and India aimed to finalize a bilateral trade agreement, with India viewing its early engagement as a strategic advantage.
Unexpected Tariff Announcements
- The US announced a 25% tariff on Indian imports and additional penalties related to India's energy ties with Russia.
- The US threatened to increase tariffs further due to India's continued purchase of Russian crude oil.
Breakdown of Trade Negotiations
- Efforts to finalize a trade agreement by the August 1 deadline were unsuccessful, despite multiple rounds of negotiations.
- Core disagreements revolved around market access in agriculture and the automotive sector, which India was reluctant to concede to protect its small farmers.
- Organizations like the Bharatiya Kisan Sangh and Swadeshi Jagran Manch opposed US demands for agricultural concessions, citing threats to food security.
Geopolitical Tensions
- India's involvement in BRICS and its oil trade with Russia have further strained relations with the US.
- The US accuses India of financially supporting Russia's actions in Ukraine, adding to trade tensions.
Economic Implications and Future Outlook
- The additional 25% tariffs could adversely impact Indian exporters, raising effective US tariffs on Indian goods from 2.3% to 18%.
- Several sectors, including textiles, auto components, and chemicals, are expected to be severely affected.
Government Response
- The government aims to design a WTO-compliant support mechanism, as direct subsidies could violate global trade rules.
