TRUMP TARIFF POLICY AGAINST INDIA

 BY CA A. K. JAIN

caindia@hotmail.com

The recent policy shift by the U.S. administration under President Donald Trump to increase import tariffs on goods and services from India is poised to have significant implications for the Indian economy, both in the short and long term.

Short-Term Impacts
1. Export Competitiveness : Higher U.S. tariffs will likely make Indian products more expensive in the American market, reducing their competitiveness. Key sectors such as textiles, pharmaceuticals, and information technology services, which constitute a substantial portion of India's exports to the U.S., may experience immediate declines in demand.

2. Trade Balance : The U.S. is India's largest trading partner, with bilateral trade exceeding $118 billion in the fiscal year 2023-24, and India maintaining a trade surplus of about $32 billion. Increased tariffs could diminish this surplus by curbing export volumes.

3. Currency Volatility : The announcement of new tariffs has already led to market instability, with the Indian rupee reaching a historic low against the U.S. dollar, closing at 87.1850 after touching 87.28. Such currency depreciation can increase the cost of imports, contributing to inflationary pressures domestically.

Long-Term Impacts
1. Supply Chain Realignment : Persistent high tariffs may compel Indian exporters to explore alternative markets, leading to a diversification of trade partnerships. This shift could reduce India's reliance on the U.S. market over time.

2. Domestic Industry Stimulation : To mitigate the adverse effects of reduced exports, India might intensify efforts to bolster domestic industries through initiatives like "Make in India," aiming to enhance self-reliance and reduce dependency on foreign markets.

3. Foreign Direct Investment (FDI) : Sustained trade tensions could influence investor sentiment, potentially deterring U.S. investors. Conversely, it might attract investments from countries seeking to leverage India's market as an alternative to the U.S.

Recommended Countermeasures for India
Engage in Diplomatic Negotiations : Proactive dialogue with the U.S. administration is crucial to address trade imbalances and negotiate tariff reductions. Prime Minister Narendra Modi's upcoming meeting with President Trump presents an opportunity to discuss these issues.

1. Retaliatory Tariffs : India has previously imposed retaliatory tariffs on U.S. products in response to American duties on Indian goods. Implementing similar measures could serve as a strategic response to the current tariff hikes.

2. Diversify Export Markets : Reducing dependence on the U.S. by exploring and strengthening trade relationships with other countries can mitigate the impact of U.S. tariffs.

3. Enhance Domestic Competitiveness : Investing in technology, infrastructure, and skill development can improve the global competitiveness of Indian industries, making them less vulnerable to external trade policies.

4. Leverage International Trade Bodies : Seeking recourse through the World Trade Organization (WTO) to challenge unjustified tariffs can be an effective measure to uphold fair trade practices.

In conclusion, while the increased U.S. import tariffs present immediate challenges to the Indian economy, strategic responses focusing on negotiation, diversification, and strengthening domestic capabilities can mitigate adverse effects and promote long-term economic resilience.

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Author : CA A. K. Jain is a practicing Chartered Accountant at New Delhi for
more then 30 years. www.tjaindia.com, e-mail : caindia@hotmail.com