Overview of Trump's Reciprocal Tariffs
President Trump's announcement of reciprocal tariffs shocked many, but it was not unexpected.
The new tariffs are both country-wise and commodity-wise, with the reciprocal tariffs being 10% for 90 days, except for China.
The calculation of these tariffs is based on a formula that accounts for exports and imports to the U.S.
U.S. discounted tariff rate = (-1) * (1/2) * (exports from U.S. – imports to U.S.)/imports to U.S.
India's Potential Impact
India's total exports to the U.S. are not very high, and the additional 26% tariff will have a small impact overall.
The key affected commodities include electrical machinery, gems and jewelry, machinery, and textiles.
India's competitors, such as China and Vietnam, are subject to higher reciprocal tariffs, which may lessen the impact on India.
India's Strategic Response
India can reduce the impact by increasing imports from the U.S. for essential items, such as petroleum, to lower the reciprocal tariff rate.
Increasing U.S. imports by $25 billion could bring India's tariff rate down to around 11.8%, making it more competitive without affecting the current account deficit.
India must engage in consultations with U.S. trade authorities to work out a fair trade arrangement.
Role of the WTO and Global Trade
The U.S. tariff move is just the beginning, and global trade structures face uncertainty.
The World Trade Organization (WTO) should lead efforts to reduce global tariffs and create a more stable trade environment.
Regional groupings may be a secondary solution, but a global approach is needed for long-term stability.
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