The United States, under the Donald Trump Administration, last week announced sweeping tariffs on almost all countries that trade with the United States. In a sweeping move, the United States imposed a tariff of at least 10% on all countries, including friendly countries, the European Union, several friendly countries in the East, and some of its known rivals, like China.
The tariffs have come into effect beginning April 5 with the worst hit being countries like China facing tariffs of 54% and Vietnam with 46%. While others like Cambodia have a tariff of 49%, Thailand and Bangladesh have tariffs of 37%. India got a tariff of 26% according to the White House tweet and 27% according to the website. China has already retaliated with 34% tariffs on all imports from the US besides other measures like restrictions on rare earths, etc. The US-China trade war goes back a few years, and Biden, too, has in the past imposed tariffs on China, especially in the semiconductor sector, and was alarmed by the US's dependence on imports from China.
The world has reacted with shock and horror. Political leaders across the globe have denounced the tariffs and have vowed to retaliate. Canada has already announced tariffs while European leaders are weighing their options as they seek to decide which course to take. India, for its part, has not announced any retaliatory tariffs but the government is keen to pursue talks with the United States on a trade deal that will bring more harmony to the trade between the two countries.
That is exactly what Donald Trump’s game plan is. To introduce a tariff not so much so because of the tariff itself, but as a negotiating tactic and a means to buy more leverage ahead of talks that his administration hopes to have with countries with which he has introduced tariffs but also to bring them to the table in the first place. Many countries are heavily dependent on exports for their economies. These include countries like Bangladesh, Vietnam, Cambodia, and Thailand as well as countries in Africa for whom the tariffs will be a huge blow.
India exports primarily pharmaceuticals, gems and jewellery, electronic items and some agricultural and fisheries products like shrimp and fish. To that extent, the biggest loser in the tariff war is India’s pharmaceutical industry. But more than that India exports services to the USA in the form of business process outsourcing, etc, which is not affected by the tariffs.
In that sense, India is in quite a strong place when it comes to negotiating with the US on a trade deal. The fear is that the government of the day will be more than willing to bend over backwards and allow the entry of US goods including farm products into India at the cost of India’s farmers, a move that will not threaten the existence of India's small scale farmers but will also be politically inexpedient.
India should not allow itself to be bullied by the bull in the China shop and stand up for itself, its producers and exporters. Besides, India can always find alternative suppliers for its major imports including petroleum products, certain fruits and agricultural products and heavy industrial machinery. India needs to use this leverage at the negotiating table and not prostrate its interests in exchange for crumbs of benefits.
