Clipped from: https://www.thehindubusinessline.com/opinion/editorial/us-tariff-onslaught-calls-for-a-considered-response/article69176640.ece
India should play its cards carefully, balancing economic and geo-strategic bets
World markets went into a tailspin on Monday —including Sensex, Nifty and the rupee — as the US slapped stiff tariffs on its top three trading partners over the weekend. Imports to the US from Canada and Mexico will now cost 25 per cent more, while Chinese goods will attract a 10 per cent additional tariff. The impact of these moves on US inflation and growth could be significant. This could upset the Federal Reserve’s plans to reduce rates, driving up the dollar and exerting downward pressure on emerging economies’ currencies. The turbulence that lies ahead vindicates the fiscal caution in the Budget. Going forward, India needs to work out a comprehensive strategy to deal with the US.
The Budget has reduced tariffs on some imports from the US, but these are not significant from the US viewpoint. They could, however, have sent out conciliatory signals to the Trump administration. An assessment by the Global Trade Research Initiative points out that duties have been reduced on waste and scrap items (5 per cent to zero per cent; $2.5 billion; FY24), fish hydrolysate used for aquatic feed (15 per cent to 5 per cent; $35 million), ethernet switches (20 per cent to 10 per cent; $650 million), flavouring essences (100 per cent to 20 per cent; $21 million), space equipment (nil tariff; insignificant imports), and perhaps most eye-catching of all, on powerful motorcycles such as Harley Davidson (50 per cent to 40 per cent or 30 per cent; $3 million). To place these concessions in perspective, US exports to India are of the order of $40 billion, led by petroleum (crude and oil; $14 billion in CY2023), medical devices ($2 billion), aircraft ($1.7 billion), machinery ($3.7 billion), scrap ($2 billion), electronics ($2.3 billion) and plastics and chemicals ($3.3 billion).
The US seeks market access for its agriculture products and high-end technology items and services (data centres and AI included). The first is virtually ruled out, while the second intersects with issues such as intellectual property and data laws. The leeway accorded to US Big Tech players may figure in talks, whether bilateral or those under the Indo-Pacific Economic Framework for Prosperity. As US seeks to close its near $45 billion merchandise trade deficit with India, it will try to bargain on an advantage — that for India, the US is its largest trade partner, whereas India is only the 12th largest US trade partner (about 2.5 per cent of US trade); Mexico, Canada and China account for over 40 per cent of US goods trade.
Yet, India should play its cards carefully, balancing economic and geo-strategic bets. Canada and Mexico have said that they will impose retaliatory tariffs. Meanwhile, the Trump administration has surprised one and all by indicating action against the EU countries as well; this too would meet with resistance. Clearly, US’ moves cannot be responded to in a hurry; they seem blunt if not ill-considered. India’s key exports to the US are pharma, engineering goods and apparel. It could seek to protect these segments through skillful parleys.
Comments
aniltikotekar4sme.com 