The US administration has pressed ahead with its decision to impose a 25 per cent penalty on Indian imports effective from August 27. This takes total tariffs to 50 per cent, effectively pricing out Indian goods in the US market. The sheer double standard in imposing this penalty needs to be called out. Such action has not been taken against other countries that import from Russia. For instance, according to the Centre for Research on Energy and Clean Air, in June, China accounted for 47 per cent of Russia’s crude exports, with the EU and Turkey importing 6 per cent each. In the case of Russia’s LNG exports, the EU was the largest buyer at 51 per cent, followed by China (21 per cent) and Japan (18 per cent). Tariffs, however, do not seem to be the only issue. There has also been talk about the H-1B visa. For instance, Howard Lutnick, the US Secretary of Commerce, has called the visa system “a scam”, and spoken about changing it. By all accounts, relations with the US could remain mired in uncertainty.
The 50 per cent tariff rate now makes trade with the US infeasible in most segments. Several sectors ranging from shrimps to diamonds, gold and jewellery, textiles, leather and footwear are expected to be badly hit, though some like pharmaceuticals, electronics and petroleum products have been exempted. The Global Trade Research Initiative, a think tank, estimates that two-thirds of exports to the US will be hit by the 50 per cent tariff. There will be economic pain and companies will face disruptions. For instance, textiles and apparel manufacturers in Tirupur, Noida and Surat have reportedly stopped production. Labour will be impacted and diversifying away from the US and finding new markets will not be easy. There may also be indirect impacts. For instance, companies, both domestic and foreign, may be less inclined to launch fresh investments in the country amid uncertainty.
The Indian government has stood firm in the face of mounting pressure. It should continue to stick to its red lines in trade agreements, even as it must continue its talks with the US. On Monday, the two countries spoke about energy security and defence cooperation under the India-US 2+2 Intersessional Dialogue. But who India trades with — Russian oil deliveries for the coming months would give a better picture of shifts, if any, in sourcing of crude — should be determined by the country’s own cost-benefit analysis, not by US President Donald Trump’s pressure. And while the government must continue to pursue trade deals with other countries, it must also aggressively push forward the domestic reform agenda. As per a report in this paper, two new informal groups of ministers (GoMs) have been set up to “prescribe reforms in the economic and social sectors”. The government must move ahead on this with urgency.
