Trump’s Tariff Threat

February has been all about Trump’s Tariffs. Trump’s new reciprocal tariffs order has sent ripples through the global markets like the peaks and troughs of his flashy signature. “An eye for an eye, tariff for a tariff, same exact amount”, the newfound swag seems to have convinced America of its greatness again.

Yet, a deeper dive into the historical data reveals a troubling reality. Despite being the world’s third-largest manufacturer and raising import tariffs since 2018, America’s trade deficit is swelling! Last year’s goods trade deficit reflects that the Americans fancy imported goods, while a strong dollar pinching US exports. Rather than reassessing the aggressive tariff policies, America has slapped additional tariffs on adversaries like China and its allies, raising serious concerns about the effectiveness of its trade strategy and the unity of the Western alliance.

The President has justified the imposition of higher tariffs by citing “urgent national security concerns” related to illegal immigration and drug smuggling from Canada and Mexico. With this special tariff - wand, Trump is now making the neighbors toil to fulfill his past promise to raise and maintain the border wall. Although Trump has granted them a 30-day reprieve from the levy, his overall policy has undermined the prosperity and sovereignty of its neighboring countries.

Trump is also retaliating against Europe’s non-tariff barriers, highlighting EU’s burdensome high internal VAT system and inefficient supply chain as the major obstacles to fair trade. As a result, the EU may evaluate and reform its internal system or consider warming up to China for batteries and wheels. This shift would indeed be a significant opportunity for China.

The President has also introduced a blanket 25 per cent tariff on steel and aluminium imports as an anti-dumping measure. This bold move has triggered retaliation from Canada and Mexico, the top exporters of steel to the United States, fulfilling nearly 50 per cent of American demand. Such a trade conflict is not merely a concern for America’s neighbours but also poses a serious threat to U.S. manufacturers who rely on these neighbouring countries for steel supplies. This would substantially increase American industry’s input costs, jeopardizing its competitiveness and the jobs it supports.

Ultimately, these rising costs will be passed on to consumers through higher prices, fueling inflation. Higher tariffs would increase the dollar value, making it more difficult for American exporters to sell their goods in the global market. As a result, it would lower revenues for American exporters, resulting in a trade deficit again.

In this context, it is necessary to critically examine India’s high import tariffs and their impact on her economy. Well! These high tariffs align with WTO guidelines, as India is recognized as a developing nation and hence enjoys perks not available to a superpower! The strategic intent behind India’s tariff system is to safeguard vital domestic industries, ensure food security and adhere to Make In India policy while imposing higher taxes on end-use luxury imports, thus encouraging people to invest in “Swadeshi” rather than indulging in foreign “sins”.

The Modi government anticipated the challenges posed by the Trump Tariff policy and proactively took decisive action to strengthen diplomatic ties with the United States while protecting the Indian economy. In the recent budget, India strategically lowered duties on luxury bikes, vehicles, and chemicals, demonstrating her commitment to bilateral trade.

Additionally, India introduced the Agriculture Infrastructure Development Cess (AIDC) to offset the potential impact on Government revenues. India is strategically diversifying its exports beyond the American market, aiming to minimize dependency risks and fortify its trade relationships with Europe and the Middle East. At the same time, our country is working on its diplomatic engagements with China.

In light of a potential tariff hike by the Trump administration, India’s move highlights her ability to navigate complex trade dynamics effectively. India’s robust trade partnerships, proactive export diversification, and significant improvements in her supply chain efficiency ensure her sustainable export growth. India’s multilateral approach guarantees India the resilience and a stable economy in this ever-evolving global landscape.

(The author is a foreign affairs expert. Views personal.)