© The Indian Express Pvt Ltd
Tags:
Journalism of Courage
CRITICISING THE high tariffs imposed by India and other countries as “not fair”, US President Donald Trump on Tuesday announced reciprocal tariffs from April 2.
Trump’s remarks, in an address to the Joint Session of the US Congress, signalled that negotiations for a trade deal may not yield concessions for New Delhi on sweeping duties. He singled out the auto sector, where, he said, India charges tariffs of over 100 per cent.
“Other countries have used tariffs against us for decades and now it’s our turn to start using them against those other countries. On average, the European Union, China, Brazil, India, Mexico and Canada — have you heard of them? And countless other nations charge us tremendously higher tariffs than we charge them,” Trump said.
“It’s very unfair. India charges us auto tariffs higher than 100 per cent.”
“India charges us 100 per cent tariffs; the system is not fair to the US, it never was. On April 2, reciprocal tariffs kick in. Whatever they tax us, we will tax them. If they use non-monetary tariffs to keep us out of their market, then we will use non-monetary barriers to keep them out of our market,” Trump said.
This comes weeks after Prime Minister Narendra Modi’s visit to the US raised hopes in the Indian industry that a trade deal could help India secure relief from sweeping US tariffs in exchange for market access for US products. India had proactively slashed tariffs on a number of items, such as bourbon whiskey, even before negotiations began.
Meanwhile, efforts to soften the impact of reciprocal tariffs are ongoing. Commerce Minister Piyush Goyal began his US trip on Monday to meet the new United States Trade Representative (USTR), Jamieson Greer, who has been tasked with implementing Trump’s tariff plan. Greer was also part of Trump’s first administration, which broadly targeted China, helping create export opportunities for India, particularly in the electronics sector.
Push to old US demand
Trade experts said the US has long been pushing other countries to lower tariffs during multilateral negotiations and that reciprocal tariffs represent a more aggressive attempt to achieve a longstanding US goal. Abhijit Das, a former trade negotiator and an expert in international trade policy and the WTO, told The Indian Express that the US had sought reductions in tariffs from all countries during the WTO Doha Round in November 2001, but these efforts did not come to fruition at the time.
“They wanted all countries to reduce their bound tariffs, which would have been less ambitious than what the US is attempting now. At that point, under the Doha Round, the US failed to achieve its goal. But through Trump’s threat of reciprocal tariffs, he might achieve much more than what the US wanted during the Doha Round. Beyond pushing for lower tariffs, he may also gain concessions on government procurement and Intellectual Property Rights (IPRs),” he said.
India’s high tariffs on automobiles
Trump’s remarks on high tariffs on automobiles are particularly significant, as India exports nearly 30 per cent of its total auto parts and accessories to the US, its largest export market in this category. In FY24, India exported $2.12 billion worth of “parts and accessories of motor vehicles” to the US, out of a total of $7.20 billion in exports for this commodity classification.
Notably, India’s auto component exports have been on the rise, primarily driven by the US market, due to the US-China trade war that Trump initiated during his first term. Total auto component exports jumped from $4.8 billion in FY19 to $7.2 billion in FY24, with exports to the US rising from $1.3 billion to $2.12 billion over the same period.
The Indian automobile industry had hoped to sustain this growth over the next five years, as India currently accounts for only 2 per cent of the US’s total $300 billion auto parts imports. A trade war targeting China could have allowed India to secure a larger market share. However, reciprocal tariffs would mean that tariffs on Indian auto parts would also increase, as the tariff differential between India and the US stands at a steep 23 per cent, according to GTRI.
Impact of reciprocal tariffs
A Goldman Sachs report suggested that India could be affected by Trump’s tariffs at the country level, the product level, or through non-tariff barriers, all of which could complicate trade relations between the two nations.
At the country level, the report said that reciprocity would be the simplest to implement. If applied at the product level — where the US matches India’s tariffs on each imported product — “this may increase the average tariff differential by ~11.5 percentage points, but would be more complex and require a longer implementation timeline,” it said.
“Reciprocity through non-tariff barriers, such as administrative restrictions, import licences, and export subsidies, is the most complicated approach, given the challenges of estimating non-tariff barriers. However, it could lead to even higher tariffs at either the product or country level,” the report said.
“India’s gross exports to the US are among the lowest compared to its emerging market peers, at 2 per cent of GDP. We estimate a potential domestic GDP growth impact of 0.1-0.3 percentage points under different scenarios of an increase in the US’s effective tariff rate on Indian exports, depending on whether reciprocity is applied at the country or product level and based on different estimates of US demand elasticity for Indian exports,” the report said.
However, in the case of global tariffs imposed by the US on all countries, India’s exposure to US final demand — factoring in exports via third countries — would be roughly twice as high (~4.0 per cent of GDP). This could lead to a potential domestic GDP growth impact of 0.1-0.6 percentage points, the report added.
