“After the trade deal, the US might lower its tariffs on textiles and pharmaceuticals, while India could reduce tariffs on US goods like almonds,” Rajesh Mehta, a US-India expert on geopolitics and business, explained. Rationalised tariffs could help India save up to $5 billion in export losses and increase bilateral trade to $500 billion by 2030, according to Mehta.
The US has 14 FTAs with 20 countries, while India has 13 such arrangements. The Narendra Modi government is also in the process of negotiating FTAs with the UK, EU and Oman.
Is a trade deal necessary for boosting trade?
In theory, free trade agreements help countries to trade with reduced or near-zero tariffs. But they also come with several non-tariff clauses that may have a bearing on a variety of topics ranging from property rights to digital regulations. “Trump is talking about tariffs. We should handle that like other countries. FTA includes many more subjects in addition to tariffs, where the US has tough demands,” Ajay Srivastava, founder of Global Trade Research Initiative, argued.
For now, India and America’s other trading partners have to deal with Trump tariffs. For instance, Vietnam last week slashed duties on US goods and permitted Starlink to operate in the country. India has also cut the ‘Google tax’ and is reportedly considering reducing tariffs on key imports from the US.
Is there anything India can do between the tariffs and the trade deal?
India used to enjoy the benefit of being part of the US Generalised System of Preferences under the Trade Act of 1974. Essentially targeted at developing countries, GSP eliminates duties on thousands of products when imported from one of 119 designated beneficiary countries and territories.
“The impact of GSP benefits on India’s overall trade was limited. In 2019, only about 16% of India’s total exports were destined for the US, and less than 2% of these exports benefited from the GSP scheme,” he said.
From 1976 to 2019, about 1,900 Indian products from sectors such as chemicals and engineering were getting duty-free access to the US market under the GSP. However, the US removed India from the GSP list in 2019 citing the asymmetry in tariffs.
Before Trump returned as the US President, India was pushing for the restoration of GSP benefits.
However, now the conversation has moved on to a trade deal, which would make the GSP moot.
Even if India clinches a trade deal with the US, the experiences of Mexico and Canada have shown that it may not be the end of the uncertainty. Trump has imposed tariffs on both countries — two of US’ biggest trading partners — despite having signed the USMCA in 2018.
“What Trump is doing is in complete violation of the WTO norms. Reciprocal Tariffs violate the principle of Most Favoured Nation, which is a cornerstone of the WTO,” said Jayant Dasgupta, India’s former Permanent Representative to the World Trade Organisation.
Has a free trade agreement with the US helped any other country?
Economists have argued that South Korea could face limited impact of Trump’s tariffs, thanks to the US-South Korea FTA, which was first signed in 2007 and revised in 2018 under Trump during his first term as the President.
“Taking these near-zero tariffs into account, the impact on South Korea is even more negligible than we had earlier estimated,” said a February 12 Barclays analysis.
South Korea is among the top 15 trading partners of the United States. In the past, South Korea’s tariffs were the second highest tariff rate after India. But the FTA has eliminated almost all of them.
Nevertheless, Trump has blamed the country for imposing tariffs that are on average “four times higher than those of the US.” But Korean officials have clarified that Seoul imposes no tariffs as part of the FTA, adding that the tariff rate is applicable only to non-FTA countries.
What’s next about the reciprocal tariffs?
The Trump administration on Monday claimed that the reciprocal tariffs will be applied on all countries rather than just ‘Dirty 15’ – the countries that reportedly impose the highest tariffs on the US.
Trump has also said that the reciprocal tariffs will be “lenient”. This means that non-tariff barriers will not be analysed while imposing reciprocal tariffs on other countries.
Moreover, there is still no clarity on how the tariffs will be calculated, even as the “liberation day” (April 2) is just hours away.
“Trump’s team has indicated that reciprocal rates will reflect a combination of factors specific to each country… But the formula for calculating reciprocal tariff rates remains unclear,” noted a Centre for Foreign Relations article.
