Paper: GS – III, Subject: Economy, Topic: Trade and External Sector, Issue: Need for a revamped trade policy.
Context:
US imposed punitive tariffs affecting about 70% of Indian exports to the US which may impact India’s GDP to an extent of 0.5% or less. There is a need for a strategic, long-term trade policy rather than reactive responses.
Key Highlights:
Immediate Impact of US Tariffs:
- Sectoral impact: Labour-intensive exports such as gems & jewellery, shrimp, leather may be severely restricted impacting about 1.7% of India’s GDP.
- Winners & losers: Indian consumers may benefit from cheaper imports if US tariffs lowered on certain products. However retaliatory Indian tariffs could raise prices for Indian consumers.
Implications for the US:
- US consumers face higher prices due to raised tariffs.
- Adverse effect on low-cost domestic US production.
- Net result may be lower consumer demand & reduced competitiveness.
India’s priorities:
Way Forward:
- Longterm focus: Do not get provoked into knee-jerk retaliatory tariffs and focus on long-term strategic priorities that will outlast short-term US protectionism.
- Domestic reforms: Strengthen manufacturing, export competitiveness, and skill base and leverage India’s geopolitical space for economic diplomacy.
- Strengthening partnerships: US–China trade war reshaping global trade flows. India must avoid being drawn into a US–China confrontation and strengthen Indo-Pacific partnerships with Japan, ASEAN, Australia.
- Neighbourhood outreach: Strategic outreach to neighbourhood (Bangladesh, Myanmar, Sri Lanka, Maldives) and BRICS partners (Brazil, Russia, South Africa).
Conclusion:
India must pursue trade diversification, invest in domestic competitiveness and maintain a calm, strategic, long-term trade policy. Proper handling can turn this into an opportunity for reform and global positioning.
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