U.S. Tariff

Context:

During his campaign, President Donald Trump often expressed his preference for tariffs, and since taking office, he has swiftly moved on this agenda. Key developments include the imposition of 25% tariffs on imports from Canada and Mexico, and 10% tariffs on goods from China.

Key Highlights:

• Harsher Tariffs on Allies
  • Ironically, the 25% tariffs on Canada and Mexico are sharper than the 10% tariff on China, which many felt should have been higher given President Trump’s promises during his presidential campaign.
• This is only part of the larger picture
  • Trump has been more harsh on democratic allies than authoritarian regimes, and this has brought international concern to the fore.

Inflation Concerns

• Inflationary effect of tariffs
  • This is another consideration of Trump’s administration. For example, Canadian oil, one of the U.S. biggest energy sources, will only incur a 10% tariff to avoid raising energy prices drastically.
  • The impact on China is harder to predict but forms part of the broader strategy that Trump has devised to engage in renegotiations with tough trading partners.
• Bargaining Tactic
  • Trump uses tariffs as a means of bargaining for better trade deals, particularly with Canada and Mexico, in the hope of concluding agreements quickly that are favorable to U.S. interests.
  • More complicated negotiations with China and the European Union may need to escalate tariffs as a bargaining chip.

India’s Takeaways

• India’s Trade Strategy
  • India should indicate both strength and willingness to negotiate, maintaining the balance between the possible unilateral tariff reductions without facing U.S. challenges against its interests.
  • India needs to find the sectors where the U.S. administration will prefer more access to the Indian market and prepare counter measures in its own interests.
• New Global Trade Dynamics
  • The global trade system is undergoing a transformation where it has become much more antagonistic from the United States side under Trump.
  • India needs to adjust to this shifting landscape by identifying opportunities for building and strengthening new trade partnerships.
  • India needs to focus more on greater integration with other trading partners through both plurilateral agreements such as the Regional Comprehensive Economic Partnership, or RCEP and bilateral trade deals with the European Union.