Understanding US Tariffs: How Reciprocal Duties Could Shape Market Sentiment Over Time

New Delhi: On February 13, the Trump administration unveiled the Reciprocal Tariff Plan. This plan allows the US to raise tariffs on countries that have a trade surplus with them. If it’s put into action, it could have serious effects on Indian exports.

The US is India’s top export market, accounting for about 18% of India’s total exports, which equals around USD 77.5 billion each year. Currently, India has a trade surplus of USD 35 billion with the US.

Which Sectors Are at Risk?

Several sectors may be heavily impacted, especially electronics, gems, jewelry, chemicals, and pharmaceuticals. According to Care Ratings, Indian exports to the US currently face an average tariff of about 3.5%. In contrast, US goods exported to India encounter a higher average tariff of around 11.5%.

India has recently reduced customs duties on imports like cars and electronics. However, it’s still unclear if the US will impose a flat additional tariff of 8% on all goods or if it will vary by product. It’s worth noting that a weaker rupee against the dollar could help offset some of the negative effects, making Indian goods more competitive in the US market.

Impact on India’s Economy

Estimates suggest that if reciprocal tariffs are implemented, India could face an annual export loss of about USD 3.2 billion, which amounts to roughly 0.1% of its GDP. However, India is actively trying to lower customs duties on critical imports from the US and diversify its trade partnerships, which may help lessen the blow.

There’s also a broader concern. A trade war could slow down global trade and economic growth, creating uncertainty for India’s economy. Some experts believe that the threat of these tariffs might just be a tactic to negotiate better trade or security agreements.

A separate report by the Global Trade Research Initiative (GTRI) points out that if a uniform tariff is enacted, Indian exports could see an extra tariff of 4.9%, up from the current 2.8%.

Specific Sector Challenges

The GTRI report indicates that agricultural exports from India would be particularly vulnerable. For instance, shrimp, dairy, and processed foods could face tariffs as high as 38.2%. In the industrial sector, pharmaceuticals, diamonds, jewelry, and electronics could see tariffs of 10.9%, 13.3%, and 7.2% respectively. On the flip side, sectors like petroleum, minerals, and garments may remain largely unaffected due to existing US tariffs.

Ajay Srivastava, the founder of GTRI, suggests India might consider a “zero-for-zero” strategy—offering to eliminate tariffs on 90% of industrial goods to avoid harsher tariffs. If the US doesn’t accept this offer, he advises India to stand firm against unfair trade practices and explore countermeasures, similar to China’s response to US tariffs.

In summary, India needs to negotiate wisely and be ready with strategies to minimize the impact of any new tariffs. Ensuring competitiveness in the US market is crucial for Indian industries moving forward.

Source link

US TARIFFS, DONALD TRUMP, INDIAN EXPORTS, TRADE, US TARIFFS INDIA, US TARIFFS: RECIPROCAL DUTIES MAY NOT IMPACT RIGHT AWAY, BUT COULD AFFECT SENTIMENT