Is India next on Trump’s tariffs list? Can New Delhi avert this trade war?
Tariffs here, tariffs there, tariffs everywhere… US President Donald Trump has imposed tariffs on products from the country’s three leading trading partners — Canada, China and Mexico — sparking a trade war with powerful repercussions for all involved.
The US president’s use of what has been described as his favourite economic weapon came into effect on February 1 — he has imposed a 25 per cent tariff on goods from Canada and Mexico, a decision he said he hopes would decrease the amount of
fentanyl and migrants coming into the US across their borders, and a 10 per cent tariff on imports from China.
But it seems that Trump has spared India in his tariff war, at least for now. The question that many are asking now, though, is will New Delhi be able to dodge Trump’s tariffs or are we next on the US president’s hit list?
Trump’s tariffs on China, Canada and Mexico
President Donald Trump signed an order to put
tariffs on US neighbours Canada and Mexico, as well as China. The US president in reaction to his tariff war said that Americans may feel
economic “pain” from his tariffs on key trading partners, but argued it would be “worth the price” to secure US interests.
“Will there be some pain? Yes, maybe (and maybe not!),” Trump wrote Sunday morning in all-caps on his Truth Social media platform. “But we will Make America Great Again, and it will all be worth the price that must be paid,” he added.
In return, the three countries have vowed to retaliate with tariffs of their own. For instance, Ottawa initially ordered tariffs of 25 per cent on American imports starting Tuesday, including beverages, cosmetics and paper products worth $CAD 30 billion ($20 billion). A second list of goods was to be released soon, including passenger vehicles, trucks, steel and aluminum products, certain fruits and vegetables, beef, pork, dairy products, aerospace products and more. Those goods were estimated to be worth $CAD 125 billion ($85 billion).
Mexico has so far said only that it will impose retaliatory tariffs, without mentioning any rate or products. Beijing has also said that it would take “necessary countermeasures to defend its legitimate rights and interests”.
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Trump spares India on tariffs… for now
However, as Trump began his tariff war, he skipped out on India. Earlier during his presidential campaign, the US president had been critical of India’s tariff structure. Last September, Trump referred to India as a “very big abuser” in terms of import tariffs. Speaking in Flint, Michigan, Trump said, “So when India, which is a very big abuser… These people are the sharpest people. They’re not a little bit backwards… You know the expression, they’re at the top of their game, and they use it against us. But India is very tough. Brazil is very tough…. China is the toughest of all, but we were taking care of China with the tariffs.”
In 2019 too, Trump labelled India a “tariff king”. He said, “I got a call from Prime Minister Modi of India. They are one of the highest-taxing nations in the world. They taxed us 100 per cent… They charge us 100 per cent tariffs on goods. So they send a motorcycle – and they make a lot of them – Indian cycles. They send them to our country, we charge them nothing. We send a Harley Davidson to India and they charge us 100 per cent.”
This had led many to believe that New Delhi would be on Trump’s tariff hit list.
But that isn’t the case, at least for now. And that could perhaps be because of India slashing its own tariffs on Washington. In fact, on Saturday (February 1), Finance Minister Nirmala Sitharaman in her
Union Budget speech announced a cut on customs duties on high-end motorcycles, cars and smartphone parts, a move that seems to give a boost to American companies like Harley-Davidson, Tesla and Apple.
For motorcycles with engine capacity not exceeding 1600 cc, the duty on CBUs (Completely Built Up) has been slashed from 50 per cent to 40 per cent. For larger motorcycles with engine capacity exceeding 1600 cc, the reductions are higher.
Additionally, tariff rate on luxury cars priced above $40,000 has been slashed to 70 per cent from 125 per cent levied earlier.
India’s Finance Secretary Tuhin Kanta Pandey, who also leads the Department of Revenue, was also quoted by The Hindu as saying, “We have finished the peak rates of 150 per cent, 125 per cent, 100 per cent, 40 per cent, 35 per cent, 30 per cent, 25 per cent. Those rate slabs are gone. It’s an indication to both — our industry, as well as to the world — that we are not a high tariff nation. Our average tariff has come down to 10.6 per cent now from about 11.55 per cent earlier,” he said.
Trump’s future tariff plans for India
And it seems that India is working hard to avoid Trump’s tariffs, as officials in the know have said that they are preparing a plan for the same.
Speaking to Live Mint, two officials said that the Indian government is expected to unveil a full-fledged response plan in the coming months depending on the decisions of the US government. “Inter-ministerial discussions are underway to prepare a list of goods that may attract US tariffs,” said the first person mentioned above. “Sensitisation of the industry about the same is also underway.”
When asked the same to Finance Secretary Tuhin Kanta Pandey, he told Live Mint, “We have to cross the bridge when we come to it. So, it will be premature for us to say how the US will impose duties on us or whether it will happen or not.”
But it’s clear that New Delhi wants to avoid a trade war with the US, as it is India’s largest trade partner and foremost export market. And it’s perhaps because of this that New Delhi has already lowered import taxes on several items, which could benefit Washington.
As Central Board of Indirect Taxes and Customs (CBIC) chairman Sanjay Kumar Agarwal said the Budget announcements send a positive signal to India’s trading partners, including the US.
Ajay Srivastava, founder of trade research organisation Global Trade Research Initiative (GTRI), also agrees with this. “Recent reductions suggest a shift towards facilitating US exports,” he told Live Mint. However, he added, “It remains to be seen whether these changes will influence Washington’s stance on India’s trade practices or become a point of contention.”
For now, India will have to play the wait-and-watch game. However, Trump’s economic gamble is concerning not just for India, but for the world. Uday Kotak, founder of Kotak Mahindra Bank, issued a stark warning about the far-reaching effects on international trade. Kotak highlighted the potential disruption to global supply chains, as the US imposes new tariffs on Canada, Mexico, and China.
“Trump, tariffs, turbulence. US imposes fresh import duties on Canada, Mexico, and China. It will have a major impact on global supply chains and markets,” Kotak wrote on X, highlighting the urgency for emerging economies like India to prepare for possible shocks. “Time for emerging markets, including India, to prepare for and be resilient to outflow shocks from global investors,” he added.
With inputs from agencies
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