India doing sector-wise analysis amid Trump tariff threat: Report

Government ministries and departments are examining different scenarios after US President-elect Donald Trump's open threat to impose reciprocal tariffs on Indian goods

The Indian government is conducting a sector-wise analysis of a possible hike in US tariffs after US President-elect Donald Trump’s threat to impose reciprocal tariffs on Indian goods, according to a report in The Economic Times.

 

Various ministries and government departments are examining trade scenarios, considering such a move by the US and possible remedies, the news report mentioned.

 

On Tuesday, Trump criticised India’s steep tariffs, including the 100 per cent tax on certain US products, and warned of a reciprocal approach if these practices persist.

 

“I have always said, if they tax us, we tax them the same amount,” Trump said, signalling a tougher stance on India and other nations like Brazil for imposing high tariffs on US imports.

 

 

According to The Economic Times report, India may look to reduce import duties on certain products from the US to address Trump’s concerns. To address US president-elect Donald Trump’s concerns, India may look to reduce import duties on certain products from the US, it said.

 

Trump’s tirade against Indian tariffs

 

Trump has long supported tariffs as a key element of his ‘America First’ trade policy, which aims to strengthen domestic industries. In the past, he has accused India of imposing high tariffs on American goods, calling New Delhi a “tariff king”.

 

In early 2018, Trump, then in his first presidency, criticised India’s high import tariffs on Harley-Davidson motorcycles, labelling them as “unfair”. At that time, India imposed a 100 per cent tariff on imported motorcycles with engine capacities over 800cc.  India’s top exports to the US in FY24 

 

In response to the criticisms, India reduced the tariff to 50 per cent in February 2018. However, Trump deemed this reduction insufficient and advocated for complete reciprocity, noting that the US imposed zero tariffs on Indian motorcycle imports.

 

Why US tariffs on developing nations are unfair?

 

Not just India, Trump has indicated heavy tariffs on countries like Canada, Mexico, and China. While Canada may still survive the heavy tariffs since it is a developed nation, economies of developing countries like India, Mexico and China can be harmed by such tariffs.

 

Developing countries typically have limited industrial capacities compared to developed nations like the US. Reciprocal tariffs can disproportionately harm these countries by restricting their access to larger markets and hindering economic growth.

 

Tariffs can also disrupt global supply chains, leading to increased production costs and inefficiencies. This disruption can be particularly detrimental to developing countries that are integrated into these supply chains, potentially leading to job losses and economic instability. For instance, the 2017 trade war between the US and China led to higher costs for manufacturers and financial difficulties for farmers in both countries.

 

India to follow ‘wait and watch’ approach

 

Speaking at an event on Wednesday, Director General of Foreign Trade, Santosh Kumar Sarangi reacted to Trump’s reciprocal tariffs remark. He said while it was difficult to decipher from one or two sentences which Trump makes, India will have to ‘wait and watch and see’.

 

“His [Trump’s] main intent is that reciprocity will matter in future. So if you are putting a tax on Harley-Davidson [bikes] we will also put a tax on your motorbike exports. So from that point of view, this will be in clear violation of the WTO [World Trade Organization] norms but there are instances when Mr Trump has used measures like Section 232 of the Tariff Act which allows the US to take unilateral measures against countries on national security grounds,” he said.

 

Sarangi said there are many areas where India has tariff peaks but the country does not necessarily export those to the US. “So if the US uses reciprocity and imposes taxes on that, it will not harm us in a major way but there could be a few items where this reciprocal principle thing might impact us,” he said.

 

In 2023-24, the US was India’s largest trading partner. India’s exports stood at $77.51 billion, while imports aggregated at $42.2 billion in the last fiscal.