The Director-General of the World Trade Organisation (WTO) that increasingly meaningless organisation, has expressed deep concern about possible escalation into a tariff war which could lead to a ‘further decline in trade’. The Managing Director of the International Monetary Fund has ‘appealed to United States and its trading partners to work constructively to reduce trade tensions’.
Current reactions from across the major trading partners, from China to the EU would however suggest that the reactions are likely to be reciprocal. The executive order of President Trump warns of action ‘to increase or expand the scope of the duties imposed’ — so the last word on the reciprocity has not yet been spoke.As part of the April 2 executive order India has been imposed a tariff of 26% effective from April 9 ( reduced from the original indication of 27% — no reasons have been given for this reduction except perhaps to bring it in line with what President Trump kept saying in his Rose Garden address. It should not be forgotten that Indian exports of steel, aluminum and auto parts are already subject to a 25% tariff in the US. It is unclear if the rates for these items will also increase to 26%. All other exports from India would face a 10% tariff till April 8 and 26% thereafter.
Thus, agriculture products , diamonds, gold, chemicals, machinery parts, textile and clothing, all major Indian exports will get impacted. These goods will become expensive — a price which the American consumer will pay who consequently could move to a cheaper option if available. The unpredictability and mercurial nature of US trade policies are best exemplified by President Trump’s statement on April 3 that ‘we are looking at pharmaceutical as a separate category — pharma tariffs are going to come in at levels you have never seen before’! This a day after having announced that pharma products are exempt—this would hit India hard.
In the meantime, India can take solace in that fact that its close competitors, China, Thailand, Vietnam, Bangladesh have all been subject to higher tariffs. This can translate into a possible competitive advantage in sectors like textiles and garments. The Indian exporter will have to ensure high quality products and move into the US market space. Similarly semi-conductors, electronics, telecom, chemicals are all sectors where with some smart strategic reorientation , the Indian exporter can move in.
Indian exporters should focus on high quality products, on cost competitiveness, on better marketing. This is specially for those products and sectors which have made their mark in the tough US market . We should focus domestically constantly on measures to improve the business environment; ease of doing business should be more than an empty slogan. This can cut down costs, improve compliance. The current crisis has also thrown up opportunities of building new alliances between India and countries who are similarly impacted by the US tariffs — EU, Africa and Latin America are not small markets. India should also look at its non-tariff barriers and cut down where required. Very many of these requirements are legacy driven — very many of them may have outlived their purpose.
The official Indian reaction from the Ministry of Commerce & Industry has been extremely muted and cautious. The Communique says that ‘the Department of Commerce is carefully examining the implications of the various measures/ announcements made by the US President.
Keeping in view the vision of Viksit Bharat, the Department is engaged with all stakeholders, including Indian industry and exporters, taking feedback of their assessment of the tariffs and assessing the situation. The Department is also studying the opportunities that may arise due to this new development in the US trade policy. It speaks of ongoing discussions between Indian and US trade teams— and obviously does not want to ruffle any feathers. India is obviously optimistic that given that tariff reduction measures it has already taken it could bargain for a lesser rate.
In conclusion while the April 2 announcements have created uncertainty, not all is lost. In this crisis lie opportunities too which India should capitalise on.
— The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
Read his previous articles here
(Edited by : Unnikrishnan)
First Published: Apr 4, 2025 2:55 PM IS
