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Irrespective of how the Trump tariff war proceeds, one thing is clear: we are moving towards...
Read More The reciprocal tariffs initiated by US President Donald Trump are bound to have lasting consequences on global trade and its structure as envisaged in the last 50 years. Irrespective of which side of the tariff debate one is, it’s unarguably a transformative moment in global economics if these reciprocal tariffs (if one may call them, given the simplistic calculation based on trade surplus each country has with the United States) remain as promised. The tariffs emanate from Trump’s view that the US has been a net loser in globalisation—with deficits of about US$1 trillion annually—and this has led to de-industrialisation in the country.
I won’t get into the merits/demerits of this view, but one can’t ignore the transformative nature of this moment. In this transformative moment, it’s important for Bharat to position itself in the best possible manner to maximise its advantages. How does one proceed? Here are some suggestions.
First, the single most important thing for Bharat to do is to focus on the bilateral trade agreement with the United States and maximise the benefits from it. Given the current Trump administration’s transactional approach to trade, it’s important to negotiate the levers of 1:1 relationship as much as possible. When PM Narendra Modi visited Washington DC, India masterfully focused on key areas of interest for the United States—cooperation in repatriating illegal Indian citizens, increased investment in defence procurement, investment in the United States—and ignored much of the noise beyond focusing on the positives.
This should continue so that we optimise the leverage that we can have in the bilateral agreements. Second, it’s important to also focus on developing regional agreements such as IMEC trade corridor, which was signed at the G20 by India with the United States and its partners. Contrary to public perception, the IMEC serves as an important geo-economic tool for enabling economic commerce and trade as well as ensuring peace in the Middle East through greater commerce.
Recent research has suggested that the IMEC corridor has the potential to bring reasonable benefits to India’s GDP if structured well. Given the multi-dimensional purpose of the IMEC corridor—catering to both economic and geo-political aims of the countries in the corridor—this could be an important forum to navigate the challenges on trade in a win-win manner. Third, the fundamental principle of reciprocal tariffs can work the other way around as well.
For instance, instead of raising tariff rates, if India resorts to reduction in import tariffs in certain important sectors substantially, then there is a possibility of carving out leverage for the US to reduce its tariffs as well using the reciprocal tariffs principle. There are certain sectors where successive governments have tried to reduce tariffs but have been constrained by political reasons and bureaucratic inertia—both of which can be countered by this contrarian response to the tariff increases. Not only will this enhance trade between the countries, it will also lead to lesser regulatory capture in the trade dynamics between the countries and as an extension would enhance ‘ease of doing business’ in India.
Fourth, even in the worst-case scenario of the current tariffs, the US tariffs towards India remain better compared to other countries such as China (34 per cent), Vietnam (46 per cent), Bangladesh (37 per cent) etc with whom India is competing for global export market in a plethora of industries such as electronics, garments, textiles, industrial products etc. As such, the China+ strategy, which was pursued by many multinational companies post-Covid, could still remain (given its relative advantage compared to other countries) and India should roll out the red carpet for these companies to leverage this advantage even further. In order to do this, there has to be renewed focus on easing the regulatory burden within the country.
A slew of measures to reduce unnecessary regulation should be unveiled in this context to ensure that most companies see India as a favourable destination in this relative context. Lastly, irrespective of how the Trump tariff war proceeds, one thing is clear: we are moving towards a world which is highly fragmented, and self-interest/transactionalism seems to be on the rise. In this context, India’s approach to trade issues—and perhaps even other major geo-economic and political issues—has to be on a case-by-case basis but with an overarching importance given to our national interest, our indigenous and intrinsic strengths through Atmanirbhar Bharat and also a flexibility to deal catering to common areas of cooperation between major countries such as the United States among others.
Sriram Balasubramanian is an economist and best-selling author of Dharmanomics. The views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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