Editorial: Tremors from Trump Tariffs

The new tariffs may adversely impact India’s booming exports in various sectors, but it could still remain competitive as China, Vietnam, Taiwan and Thailand face even higher tariffs

Trump Tariffs spare none; both allies and adversaries take the hit. The moment of reckoning for global trade has finally arrived, with United States President Donald Trump unveiling a new set of reciprocal tariffs across the board, ostensibly aimed at addressing unfair trade practices. The tariffs, which are set to impact countries that impose high duties on US exports, will see India facing a 26% tariff on its goods entering America. The new tariffs may adversely impact India’s booming exports in myriad sectors, but it could still remain competitive as China, Vietnam, Taiwan and Thailand face even higher tariffs. While the general reaction from markets and industry circles has been gloomy, some experts have suggested the possibility of diversion of trade in favour of India in some sectors because the tariffs imposed on China and Vietnam are much higher at 34% and 46% respectively. A recent report estimated that if the US imposed a broad country-level tariff of 25% on Indian imports, India’s GDP could take a $31-billion hit. This figure can go up further, given the indirect impact of tariffs on countries where American and Indian product supply chains are deeply interconnected. It will also cause prices of inputs and intermediate goods to rise, which will add to the cost of production. The most affected sectors in the Indo-American context are likely to be electronics, gems and jewellery and pharmaceuticals. All of this forms a crucial backbone of India’s rapidly growing export economy: in the case of smartphones, for instance, India contributes around 10% to the US imports.

Indian pharmaceuticals, which account for $7 billion in exports to America and contribute to about 47% of America’s generic drugs, will see raised costs. Similarly, India’s $9 billion textile sector, which is again a labour-intensive industry, will struggle against cheaper competitors like Vietnam and Bangladesh, risking millions of jobs. The $8.58 billion jewellery export industry will lose its price advantage to rivals such as China and Belgium. Auto parts exports, valued at $2 billion, will face setbacks, which will disrupt supply chains for US manufacturers. Even IT services, which send almost $100 billion in exports to the US, are at risk of retaliatory measures that could destabilise India’s largest foreign exchange earner. There is a possibility that higher tariffs on Vietnam, Cambodia, Sri Lanka and Bangladesh could give Indian apparel exporters a competitive edge. With the US being a key market for both smartphones and solar modules, the higher duties pose a significant challenge. However, given Vietnam’s strong presence in both sectors, the tariff differential could offer India a competitive edge. In late March, the Trump administration had announced a 25 per cent tariff on automobiles and auto parts, set to take effect from April 3. The tariffs cast uncertainty over India’s $7 billion auto component exports to the US.

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