Will Trump Tariffs Bite India?

India’s policymakers are aggressively working towards the trade pact, necessary to keep the US market open for Indian exporters. Sources said that the Prime Minister’s Office, along with senior ministers and government officials, are monitoring the developments around the trade talk.

“There is no need for any alarm, we have our plans in place,” Union Petroleum Minister Hardeep Puri recently told The Secretariat on the sidelines of an event.

Another 1991 moment?

Many ask whether this will be the second 1991 moment for India? A massive economic liberalisation move forced by external factors, which will pump up the country's vitals and open the floodgates for growth, or a turning point, where Indian industry will face intense external pressures, jeopardising their steady growth.

In 1991, Manmohan Singh steered India away from the License Raj to an era of liberalisation, which saw India's GDP boom as never before.

With less than 24 hours left for the US to impose sweeping tariffs, it is not clear which sectors will be specifically impacted. The finer contours of the tariff strategy are also unknown.

“The exact impact on our trade can be assessed only once the full details of the tariff policy become clear,” Ajay Sahai, director-general and CEO, Federation of Indian Export Organisations (FIEO) told The Secretariat.

The US administration has set its eyes on sectors like automobiles, agricultural produce, pharmaceuticals and alcohol, terming India's tariffs as too high. For Washington, Indian data privacy rules have also become a bone of contention.

“If you look at the unfair trade practices, we have 50 per cent tariff from the European Union on American dairy and a 700 per cent tariff from Japan on American rice. You have a 100 per cent tariff from India on American agricultural products and a nearly 300 per cent tariff from Canada on American butter and cheese,” White House press secretary Karoline Leavitt said on Monday.

Rahul Ahluwalia, founder-director of Foundation For Economic Development (FED), in a conversation with The Secretariat, underlined the need to bring in urgent reforms in the agriculture sector, which is key for the country’s economy and food security.

Frankly, it may not matter to the general populace if Americans can sell more Harley Davidsons and California wines in India. Only a handful of super-rich would have the refinement, money or inclination to go for such America’s goodies, argue officials who favour liberalisation.

Trump’s proposed imposition of "permanent" tariffs on cars could also have an impact on the automobile sector.  

“Even if some sectors are impacted by reciprocal tariffs, it will be for a limited period of time, as the India-US BTA is expected to be in place by around October. Depending on the final announcement, a few sectors may have to bear the brunt,” Sahai said.  

Some analysts have opined that a few Indian industries and sectors may even stand to gain from Trump's tariff policy.

Meanwhile, just ahead of the imposition of the sweeping tariff regime, Trump, at a media briefing, announced that India will drop its tariffs. “I heard that India is going to be dropping its tariffs substantially. A lot of countries are going to drop their tariffs,” the US President said.

The final announcement on this is slated to take place at 4 pm (US time) on April 2. Trump said that reciprocal tariff imposition will be a “big game-changer” for the US, under which, the US will impose the same quantum of tariffs on goods that other economies apply on American goods.

Last year, India’s exports of goods to the US stood at USUS$ 87 billion, while imports were at US$ 42 billion.

Problem Areas: Farm Tariff, Government Purchases

Farm tariffs are more problematic. If duties on wheat and rice are reduced, many Indian small farmers may suffer. It is a politically sensitive matter, and a decision either way can cause trouble for India.

The other big issue is government purchases. The US trade representative is known to be pushing India to relax its government purchase norms, to allow American firms to bid for tenders.

The government may not listen to these demands, and may instead try to sweeten the deal by buying more US shale oil and defence items. Several analysts have opined that India needs to “weigh all pros and cons before giving in to US demands".

How The World Is Reacting

Trump’s tariff plans have ruffled up several key partners of the US. Terming Trump’s move as “unjustified”, Canadian PM Mark Carney promised to retaliate. The EU, too, is looking at plans to retaliate. 

On the other hand, China, which could also be hard hit by Trump's tariffs, is looking to expand trade ties with Japan and South Korea. In the process, it may well try to position itself as an alternative to the US. 

According to Foreign Policy magazine, China is also using the strategic space created by the decline of the US-led global order, to threaten and bully other neighbours, like Taiwan — which might frustrate its attempts to play nice with Japan and South Korea.