Trumps Reciprocal Tariffs A New Trade Challenge for India and Global Markets

(Source – Indian Express, Section – Explained- Page No. – 15)

Topic: GS2 – International Relations

Context

U.S. President Donald Trump announced reciprocal tariffs on trade partners, impacting both developed and developing nations, including India.

 Analysis of the news:

Overview of Trump’s Tariff Policy

• The policy aims to counter what Trump calls unfair tariff practices, with India, China, and the EU imposing higher tariffs on U.S. goods.
• This move signals a shift in U.S. trade strategy, challenging existing agreements and WTO norms.

Uncertainty for India’s Trade Relations

• India is negotiating a bilateral trade agreement (BTA) with the U.S., hoping for tariff concessions.
• However, Trump’s 25% tariffs on steel and aluminum and similar actions against Canada and Mexico raise doubts about American adherence to trade deals.
• The disregard for NAFTA, replaced by USMCA, highlights potential risks for India’s trade commitments.

Agriculture: The Most Vulnerable Sector

• India’s high agricultural tariffs (39% simple average, 65% trade-weighted) contrast sharply with the U.S.’s 5% simple average, 4% trade-weighted
• This disparity makes India’s farm sector highly susceptible to reciprocal tariffs, especially amid ongoing farmer protests demanding Minimum Support Price (MSP)

Impact on Key Industries: Automobiles and Pharmaceuticals

• High tariff differentials in key industries—automobiles (23.1%) and pharmaceuticals (8%)—could lead to reduced exports and increased costs in the U.S. market.
• Given that pharmaceuticals make up 9% of India’s $20 billion exports to the U.S., India may need to diversify export destinations and explore joint ventures or assembly units in the U.S. to mitigate risks.

WTO Challenges and U.S. Trade Policy Shifts

• Trump’s 2025 Trade Policy Agenda questions the World Trade Organization’s (WTO) relevance, criticizing Special and Differential Treatment (SDT) provisions that allow developing nations, including India, to receive trade benefits.
• The U.S. also criticizes China’s state-led economic model, arguing it contradicts WTO principles, signaling a potential shift away from multilateral trade norms.

Conclusion:

• India faces significant trade challenges due to Trump’s tariff policy, affecting agriculture, manufacturing, and exports.
• To mitigate risks, India must diversify trade markets, seek strategic partnerships, and strengthen domestic industries to withstand global tariff pressures while navigating an uncertain WTO framework.

Practice Question: The U.S.’s policy of reciprocal tariffs challenges existing trade agreements and disproportionately impacts developing nations like India. Analyze the implications of these tariffs on India’s economy, key industries, and global trade relations. Suggest strategies for India to mitigate these challenges while maintaining its trade competitiveness. (250 Words /15 marks)

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