Global trade order has been disrupted by the US tariff assault. America was committed to free markets, and the irony is that it is disrupting the trade order. Of course, it has been triggered by a widening trade deficit with the rest of the world — yearly $ 1.2 trillion. It has devastated the industrial base of the US in the last half a century. However, the additional tariffs are not confined to the countries which run trade deficits. There is no positive discrimination. It is a protectionist policy for the US industry. It could do damage to the US industry as well. US could face recession over the next year or so. It could face stagflation.
The tariffs seem to have been computed by an obscure formula linked to trade deficits. Trump clarifies that its tariff could be contained if countries take steps to increase market access for the US firms. There could be tariff wars and a reorganization of world trade order.
India faces 27 per cent tariff on its exports to the US. It will be added to the extant average US tariff at 3.3 per cent. Product-wise duties on Indian exports could be higher in a few cases. The extra imposts on India are lower than many at India’s key Asian competitors. It is comforting for India that pharmaceuticals and semiconductors are exempt from reciprocal levies.
India now must negotiate with US bilateral trade agreement in a mutually beneficial manner. Along with this, there should be domestic reforms to boost productivity. India in short-term may lose in labor-intensive sectors such as sea road, gems and jewellery . However, India could gain in textiles which is equally labour intensive. India could have advantage in electronics. The US is not in favour of non-tariff barriers to trade. India must exercise caution here. India can consider legitimate concerns of domestic industry, but these should not come in the way of business practices.
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