US President Donald Trump slapped India with some of the highest tariff rates imposed on any major US trading partner, saying his good personal ties with Prime Minister Narendra Modi did not affect his decision.
The Trump administration imposed a 26% tariff on imports from India, which is slightly higher than the 20% levy for the European Union, the 24% for Japan and the 25% for South Korea. China was hit with one the highest rates for a major US trading partner and now faces a tariff of at least 54% on many goods.
The tariffs are a setback for the Indian government, which had sought to ward off the new levies by rolling out sweeping concessions on issues central to Trump’s agenda. During a visit to Washington by Prime Minister Narendra Modi in February, the two nations agreed to work toward a trade pact this year.
“India, very, very tough. Very, very tough,” Trump said at a news event at the White House on Wednesday to announce the tariffs. “The prime minister just left, and he’s a great friend of mine. But I said, you’re a friend of mine, but you’re not treating us right. They charge us 52%.”
The levies are likely to ratchet up pressure on officials in New Delhi to hash out a trade pact with Washington to win a reprieve, as per a Bloomberg report.
Ahead of the move, the Trump administration has been signaling India would be a target of the new duties, given that New Delhi charges some of the highest tariffs of any major economy. Trump has repeatedly criticised India’s high levies, branding the country as the “tariff king.”
Pressure on India
Before the reciprocal announcement, the US tariff rates were among the lowest, with simple average tariffs at 3.3%, compared with India's 17%, the White House said.
Over the past few weeks, India overhauled its tariff regime, reducing import duties on some 8,500 industrial items, including on prominent American goods like bourbon whiskey and high-end motorcycles made by Harley-Davidson Inc., satisfying a longtime grievance of the US president.
India also indicated its willingness to buy more American oil, LNG and defense equipment to narrow its bilateral trade surplus. Officials have also signaled that more tariff cuts would be in the offing.
The levies will add further pressure on India to make even deeper cuts to its tariff regime. As a part of the discussions, India is considering US demands of duty cuts on US farm products, Bloomberg News reported last week. Officials were optimistic of a favorable outcome in wake of these concessions.
The new duties could also push New Delhi to yield to the US demand on dismantling non-tariff trade barriers, such as opaque import restrictions and licensing requirement on some imports.
Trump and Modi held multiple meetings during the US president’s first term. The US over multiple administrations has cultivated India as a regional partner and a bulwark against a more assertive China.
Impact on Indian economy
The US duties risked pushing India closer to alternative trade blocs and strategic partners, Nigel Green, CEO of global financial advisory deVere Group, told Reuters.
"(This) makes Indian exports immediately less competitive ... it dents investor confidence just as India is trying to attract global capital fleeing China," he said.However, a recent SBI Research report said that the impact of Trump’s tariffs is likely to be limited. This sentiment is echoed by several global research and ratings firms and banks such as Goldman Sachs, Nomura, Morgan Stanley and Fitch.
According to the SBI analysis, the potential impact of US tariff reciprocity on Indian exports would be modest. It projected a reduction of approximately 3 to 3.5 per cent.The report indicates that India's strategic approach to export diversification, emphasis on value addition, exploration of alternative markets, and development of new trade routes from Europe to USA through the Middle-East would offset the effects of US tariffs.
Goldman Sachs notes that India’s gross exports to the US is one of the lowest among its Emerging Market peers. Fitch says India’s low reliance on external demand makes it ‘somewhat insulated’.
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