Trump’s tariff regime is causing turmoil. What should India do?

Indian Express Editorial Analysis
05 March 2025

Trump’s tariff regime is causing turmoil. What should India do?

(Source – Indian Express, Section – The Ideas Page – Page No. – 14)
Topic : GS3- Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment

Introduction: Overview of the Trade War

• Trigger: The tariffs that US President Donald Trump announced early last month — 10% on Chinese and 25% on Canadian and Mexican goods — have led to a full-blown trade war.
• Retaliation
  • China imposed tariffs on US agricultural exports (15% on wheat, corn, cotton, chicken; 10% on soybeans, pork, beef, etc.).
  • Canada retaliated with tariffs on $155 billion worth of US imports.
• Global Escalation
  • Steel/Aluminium Tariffs: 25% worldwide tariffs effective March 12.
  • Reciprocal Tariffs: Proposed matching of other countries’ import duties on US goods.

Key Impacts

• On the US
  • Hit on Agriculture Sector
    • China is the largest buyer of US soybeans, cotton, and a major market for beef/dairy.
    • Risk of losing market share to Brazil, Argentina, and Paraguay.
  • Political Fallout: Trump won 78% support in farming-dependent counties in 2024 elections.
• On Global Markets
  • Inflation in the US: As the US increasingly cuts itself from imports, the result would be higher inflation.
  • Emerging Market Risks: Higher inflation will force the Federal Reserve to hike interest rates, which will, in turn, lead to further capital outflows from emerging market countries such as India.

India’s Position

• Opportunities
  • Global Trade Leadership
    • Position India as a reliable trade partner amid global disruptions.
    • Explore new export markets (e.g. fill gaps left by US-China trade tensions).
  • Trade Liberalization
    • Reduce duties on select US imports (e.g. almonds, walnuts, corn, whiskey) to strengthen bilateral ties.
    • Benefit Indian poultry/dairy sectors via cheaper feed imports (e.g. corn).
• Risks
  • Retaliatory Tariffs: US could target Indian exports like seafood, basmati rice with tariffs.
  • Domestic Protectionism: Inward-looking policies could harm India’s integration into global supply chains.

Way Forward: Recommendations for India

• Proactive Trade Negotiations
  • Engage with the US to avoid retaliatory tariffs on key exports.
  • Leverage India’s growing consumer market in trade talks.
• Diversify Export Markets: Reduce dependency on traditional markets (e.g. EU, US) by exploring Africa, Southeast Asia.
• Liberalize Import Policies
  • Lower agricultural tariffs to stabilize domestic prices and improve competitiveness.
  • Balance protection for farmers with access to affordable inputs.

Conclusion:

The US-led trade wars risk global economic instability, inflation, and capital flight from emerging markets. India must adopt a balanced strategy, with a long-term goal of emerging as a stabilizing force in global trade amid rising geopolitical tensions.

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