Trump’s tariff flip-flops stir uncertainty, forcing India to rethink its trade strategy.
America’s global tariff onslaught lacks a consistent script. The flip-flops have rocked global markets and created uncertainty, sapping business confidence.
On March 26, 25 per cent tariffs were imposed on automobiles and their parts. On March 31, any exemptions were ruled out. On April 2, reciprocal tariffs kicked in. On April 9, after a $10 trillion carnage in global markets and the bond market panic, a 90-day postponement arrived. Meanwhile, as China retaliated with counter-tariffs of 84 per cent, the US ratcheted up those on China to 125 per cent, and then 145 per cent. The US was enforcing the threat that any retaliation would invite a punitive response. Once again, on April 12, suddenly iPhones, iPads and all other electronic devices were exempted from the 10 per cent baseline tariff and reciprocal tariffs. Apple dodged a serious crisis.
However, soon contradictions emerged that this rollback may not be permanent. President Donald Trump used his Truth Social platform to declare that “NOBODY is getting ‘off the hook’ for the unfair Trade Balance, and Non-Monetary Tariff Barriers”. New tariffs are likely on semiconductors and pharmaceuticals. India has chosen self-restraint and pragmatic appeasement. After Prime Minister Narendra Modi’s February visit to Washington, a preliminary bilateral trade agreement (BTA) by autumn was announced. The commerce ministry revealed on March 29 that “an understanding on the next steps” had been reached.
Nearly 80 nations have a 90-day respite to conclude trade deals with the United States. It is unlikely meanwhile, that the Trump administration will maintain silence or avoid further provocative actions on trade relations. The tariffs imposed on each country are based on a rough formula, unrelated to economic factors or existing tariff differentials.
The US endgame is equally unclear. Conceptually it is impractical to have zero trade imbalance with each country. The US itself has trade surpluses in services globally, which President Trump ignores when playing the victim.
The Zero-for-Zero trade strategy lacks global consensus. It involves matching or eliminating tariffs on identical product lines. It is especially unworkable when the two economies are not at equivalent levels of development. For example, though gems and jewellery top the Indian exports to the US, they lack the capability for producing similar labour-intensive products. Hence, India is looking for a package deal.
The US is apparently seeking duty concessions for industrial goods, automobiles (especially electric vehicles), wines, petrochemical products, dairy and agricultural products, etc. India already imports apples and tree nuts from the US.
In 2018 India imposed tariffs on apples to protect local producers. Many of these tariff lines were rationalised by the time India hosted the G-20 in 2023.
In turn, India would like US tariffs cut on labour-intensive products that India can make or actually export. These include apparels, gems and jewellery, leather, plastics, chemicals, oil seeds, shrimp and horticulture products and so on. The US lifted an 18-year ban on import of Indian mangoes in 2007. Fear of fruit fly infestation caused the ban. India’s commerce minister Piyush Goyal claims that India has cut tariffs on 55 per cent of US exports. A deal by Reliance Jio and Bharati Airtel with Elon Musk’s Starlink for Internet service appears like wooing of powerful figures around President Trump. Both companies had earlier resisted the entry of a foreign player in a segment which they dominate.
All these competing, but not always overlapping, interests need to be balanced to successfully negotiate the BTA. There are multiple hurdles.
One is the lack of policy coherence in Mr Trump’s condemnation of the existing global trading order under the World Trade rganisation’s mandate. What alternative order does the US seek? Hopefully it is not a laissez faire system varying from nation to nation. This is reflected in Mr Trump’s erroneous recalling of past tariff walls as the golden period.
Two, there is now no ambiguity about China being the principal American target.
Why then did Mr Trump’s presidency commence with his aides and ministers lambasting Nato, downgrading the defence of Ukraine while insulting its President, and laying claim to Greenland, including the threat of the use of military force, and side with far-right forces in European politics? Having alienated the European allies and Canada, the US now wants them to join it in isolating China.
Global Trade Alert has argued that the US share of global imports is only 15 per cent. Hence, if 100 other nations simply disengaged from it and traded amongst themselves, the global economy can survive or even prosper. An urgently summoned meeting between China, South Korea and Japan, to accelerate free trade agreement talks, aligns with this. The 2020 Regional Comprehensive Economic Partnership (RCEP), consisting of the 10 Asean nations, besides the three above plus Australia and New Zealand, is already an available platform for regional trade. The 15-member group accounts for about one-third of the global population and GDP. India walked out in 2019, during the final stage of negotiations, on the pretext of protecting its domestic market. India feared cheap Chinese goods flooding the Indian market. Dairy products of Australia and New Zealand were also seen as a possible threat to India’s domestic supply chains. The May 2020 Chinese military intrusions in Ladakh’s Galwan Valley and other sections of the Line of Actual Control may have been triggered by the Chinese assessment that India was seeking rivalry and competition, and not cooperation.
China has a fresh opportunity to fill the vacuum generated by the American disruptive conduct. China, instead of dumping surplus goods in non-US markets, should raise its domestic demand. It can boost social welfare programmes, increase access to healthcare and redistribute wealth. It already seems to be wooing the private sector after targeting them. It could begin by de-escalating tensions in the East and South China Seas and overland with India. Hoping to appease President Trump by reasonable measures which meet him half-way is quite risky. It is also unsafe to assume that the MAGA-fed Trumpian action by the US will not outlast Mr Trump’s four-year term.
Hence, India should abandon its defensive wait-and-watch play, excessively worried about irritating Mr Trump. A new world trading and economic order is inevitable. Engaging big players like the European Union and the RCEP members openly is necessary. Mr Trump’s past is laden with bankruptcies and indictments. It is difficult to foresee his current venture courting success.
