India is different from the rest of the world economies because its domestic fundamentals are clear and India has a demand driven growth. It will have relative advantage among the Asian economies.
The unveiling of US President Donald Trump’s “tariffs strategy” has raised debates among the members of international community in general and the global economists and investors in particular on the specifics and whether these shifts in the United States economic policy will be a boon or a curse for the global economy. The tariffs strategy included reciprocal actions on a number of countries including China and India. Though, the announcement made by President Trump has sent shockwaves around the world, the United States seems to be also experiencing the hit because of its impact on the global market. The investors around the globe have also shown disenchantment with President Trump’s attempt to remake the economic order. There is a dominant view emerging that a President has directly inflicted damage on the financial markets at a global scale. More importantly, Mr Trump despite all these growing concerns is not showing any willingness in backing down from his policy. Trump’s social media post that “my policies will never change” is a pointer to his adamant posturing in this regard. It must be emphasized here that the scale at which the tariffs have come up, it certainly will add to the ongoing economic recession which will fuel the global economic stress.
President Trump had always taken a stand that tariffs will help in restructuring the US economy and help bring manufacturing back so that the United States will become less dependent on foreign trade. Such reset in US policy reflects very little on the significance of the growing surge in economic interdependence across the world. It is perhaps foreign trade only which can boost the size and volume of the global economy.
Whether imposition of reciprocal tariffs on major world economies will help the United States in leveraging its economic interests remains a moot point. The United States has already enforced a uniform 10% duty on all incoming foreign goods. It has also come up with matching tariff framework which in technical sense will apply import levies equal to those charged by other nations on American exports.
China tops the list in Trump’s reciprocal tariff framework among Asian countries. The US reciprocal tariffs for China is 54%. For Indian goods, it will be 26%. Japan has been kept at the level of 24%, South Korea (25%), Vietnam (46%), Sri Lanka 44%), Bangladesh (37%) and Singapore (10%). What parameters were taken to fix the reciprocal tariff framework and how it will be in the interest of the United States need to be ascertained. Though, it has been assumed that all major economies will counter United States reciprocal tariffs. The European Union and Canada, which perhaps receives the highest volume of US exports have already indicated their intention to implement similar measures.
China hurriedly announced 34% duty. The issues relating to the manufacturing, commerce and utilization of products and services needed to be evaluated in understanding the consequences of this reciprocal trade conflict. China is far ahead in manufacturing in comparison to the United States and the sustenance of their economy perhaps will be much longer than the countries which are still thinking to put their emphasis on strengthening their manufacturing sector.
India, on the other hand, seems to be slightly better placed than the rest of the Asian countries. The United States has put lower tariff rates on India than on key peers, which will have a relatively modest impact on exports and will possibly gain from supply chain shifts. India has also shown a consistent growth in economy and has made a strong base despite global economic challenges. Even in a worst case scenario of a 10% or 15% decline in exports to the United States, India’s GDP will not experience a downward trend. There will certainly be global trade frictions from Trump’s tariffs strategy, but with India’s relatively resilient domestic demand and to a degree of domestic versus foreign demand, India’s growth is expected to remain consistent to the level varying between 6.5% to 7.5% range over the next five years. It is important to note that India’s goods trade surplus with the United States at $50 billion is far lower than that of China. China stands at $320 billion, Mexico at $180 billion, Vietnam at $120 billion, Germany at $90 billion and Ireland also at $90 billion. India can make a case for a negotiated tariff reduction. Moreover, given the low import component in India’s current inflation, there will be less impact of tariff on consumer prices. India can also leverage its economic interests by enhancing exports because exports now onwards will become highly competitive.
India remains different from the rest of the world economies because its domestic fundamentals are clear and has a demand driven growth. It will have a relative advantage among Asian economies.
However, critics of Trump’s plan believe strongly that it could trigger widespread damage to financial markets. As the United States looks to protect itself, it has signalled that it will impose import levies even on those allied nations which will not get aligned with the United States trade demands.
There is no denying the fact that President Trump’s approach in the emerging dynamics of geoeconomics having a strong belief that the tariff measures will secure American economic interests, promote domestic production, and reshape global trade relations—even at the risk of financial market upheaval and international discord is something the rest of the world has been worrying about. Such action of the United States will certainly not build a win-win situation.
* Prof Arvind Kumar teaches at School of International Studies at Jawaharlal Nehru University, New Delhi.