Paper: GS – II, Subject: International Relations, Topic: India’s Relations with Major Power, Issue: India – US Trade and Tariffs.
Context:
United States President Donald Trump announced that imports from India would attract an additional 25% tariff as penalty for India buying Russian energy.
Key Takeaways:
- Together with the 25% tariff that Trump had announced earlier, imports from India will now attract a total 50% tariff-making India (along with Brazil) the country facing the highest tariff wall in the US.
- India has described these actions as “unfair, unjustified and unreasonable”, and said it would take “all actions necessary” to “protect national interests”.
- Experts suggest that the tariff can result in India’s annual economic output (measured by gross domestic product or GDP) to fall by over half a per centage point.
Implications of the 50% Tariff on India:
- Economic Impact on India: The U.S. tariff effectively raises the cost of Indian goods by 50%, thereby reducing their competitiveness in the U.S. market.
- It is estimated that India’s GDP could fall by over 0.5% due to decreased demand for exports.
- Trump’s Motivation: The tariff seems to be a negotiation tactic aimed at compelling India to agree to a trade deal favorable to the U.S. rather than a straightforward punishment for importing energy from Russia.
- Trade Dynamics: Tariffs act as a tax on consumers, making imports more expensive and likely decreasing demand for Indian products.
- This could lead to a simplification of the U.S. trade deficit by reducing imports from India.
- The imposition of tariffs on India may also be part of a broader U.S. strategy to re-balance trade, as seen with other countries as well.
- Sector-Specific Effects: The textile and agriculture industries, particularly small-scale firms and labor-intensive sectors like seafood, are likely to be hit hardest.
- Loss of contracts can lead to job losses and affect livelihoods.
Challenges faced by Key stakeholders and India’s Strategic Responses:
Trump’s 50% tariff on India highlights tensions over trade, energy security, and sovereignty. It challenges Indian exporters but fuels self-reliance and BRICS ties. India must balance US ties, diversify trade, and strengthen domestic industry, shaping a model for emerging economies amid growing global trade fragmentation and great power rivalry.
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