By Anvitti Rai
The US has imposed fresh import duties on Canada, Mexico, and China, triggering fears of a global trade war. In a bid to shed its image of a protectionist economy, India cut import tariffs in the Budget last week, but whether that will be enough to appease the US is still debatable, explains Anvitti Rai
What has been Trump’s stance on tariffs?
ALL THROUGH HIS election campaign, US President Donald Trump has been vocal about his America First stance, so much so that his antiglobal trade measures have been classified under a school of thought named after him—Trumpism. He has also vouched to protect American jobs, and most of all, he has been seen to want to reduce the American trade deficit. His first volley of tariffs has hit China, Canada, and Mexico—with a 25% tariff on Canada (for Mexico, it was paused for a month later in the day), and a 10% tariff on China effective from today.
He imposed the tariffs under the International Emergency Economic Powers Act (IEEPA) to halt “illegal immigration” and stop “poisonous fentanyl and other drugs” from flowing into the US. Before assuming office, Trump also threatened the BRICS nations with similar tariffs should they try to replace the dollar; however, so far, no measures have been taken except against China. In response, China has stated, “This move cannot solve the US problems at home and, more importantly, does not benefit either side, still less the world”,while Canada has retaliated with counter-tariffs.
What does data say about the US trade deficit?
THE US TRADE deficit with the rest of the world stands at around $775 billion, which is the largest in the world. According to the World Population Review, “while the country brought in $3,826.9 billion in imports, the amount of exports was just $3,053.5 billion, (BEA, 2024)”. While the US exported cars, food, and commercial aircraft the most, leading import items were mobile phones, oil, and cars. The largest contributors to the US trade deficit are China (30%, $317 billion surplus), Mexico (19%, $200 billion surplus), and Canada (14.5%, $153 billion surplus), according to 2023 data. India, being the ninth-largest contributor to it, at $35.32 billion in FY24, might not be at the top of Trump’s hit list. Rather, the European Union seems to be next on the firing line with Trump saying “the US will definitely impose trade tariffs on the EU”.
India-US trade and the sore points
THE US IS India’s largest trade partner, with which it has a significant trade surplus. Trump had called India a “tariff king” during his first tenure, and grouped India, alongside China and Brazil, as “tremendous tariff makers” during an election rally last year, warning that he would put tariffs on products of export interest to India like aluminium, pharmaceuticals and steel. The US is the biggest market for Indian pharma exports with a total share of 38.8%.
After taking office, Trump had urged Prime Minister Narendra Modi to boost India’s procurement of US security equipment to foster a “fair” bilateral trade relationship. India is also among the BRICS grouping, which was hit with a 100% tariff threat should they try to replace the US dollar. Thus India could be dragged into Trump’s global trade war. Trade talks will certainly be at the top of the agenda during Modi’s visit to the US later this month.
Pre-emptive moves by India
ON SUNDAY, FINANCE secretary Tuhin Kanta Pandey said India wants to shed its image of being a protectionist country. “We are signaling that India is not a tariff king,” he said. “We are indicating that we are a competitive economy and we are open for business.” The Budget last week restructured the import tariff structure—the import duty slabs of over 70% on the most favoured nation basis were scrapped, covering a range of goods from electronics to textiles.
Customs duties on high-end bikes, cars and smartphone parts were cut, a move that is likely to help US companies like Harley-Davidson, Tesla and Apple. The tariff rates of 150%, 125% and 100% no longer exist, and other duty slabs were also adjusted. The changes mean India’s average tariff is now 10.66%, down from 11.65%. Experts, however, say the scrapping of seven rate slabs would not result in any reduction in overall tax incidence on the goods covered, because of the imposition of an agriculture infra cess. On some items, however, tax incidence will come down marginally.
Will the tariff war affect global trade?
OPINION DIFFERS ON whether Trump’s trade war will actually work for the US. While the immediate effects are visible as the dollar soars, it is not necessary that this will only impact the trade deficit positively. For instance, China worked around the US tariffs by routing its goods through Canada and Mexico. Again, protectionist tariffs hurt domestic consumers, because inflation is driven up as companies pass over the tariff costs to the customers.
As per a study by Global Trade Research Initiative, between 2017 and 2023, key beneficiaries of the trade war (initiated during Trump’s first tenure) included Mexico, Canada, and ASEAN nations, which accounted for 57% of the growth in US imports overall. “With key tariff cuts on technology, auto-mobiles, industrial inputs, and waste imports, India appears to be taking steps toward facilitating trade even as the global trade environment remains tense,” said its founder Ajay Srivastava. Whether these reductions will alter US’s view of India’s trade practices remains to be seen.
