In the context of a potential tariff war, discuss the challenges and opportunities for India amidst the ever changing global scenario.
The “Liberation Day” declaration of the United States of America ignited a war without gunpowder — a trade and tariff war that has caused not only a crash in domestic stocks, bonds, and currency markets but also wiped out vast amounts of global wealth.
Tariff war and its challenges:
- Base Tariff: A 10% base tariff will be imposed on all countries. This is a significant increase from the pre-Trump tariff rate of 2.5%.
- Country-Specific Tariffs: Additional tariffs will be applied based on how much each country charges on US goods. These tariffs are set at half the rate of what the US estimates other countries impose. President Trump cited American “kindness” as the reason for this discounted approach.
- The US abuse of tariffs, under the guise of “reciprocity and fairness”, violates WTO rules, severely undermines the rules-based multilateral trading system, and disrupts the global economic order. All countries, regardless of their size, are equal. The US abuse of tariffs is a typical act of unilateralism, protectionism and economic bullying.
- Its essence is to deprive the vast majority of developing countries of their rights to development and progress, keeping them permanently at the lower end of the global supply chain in labour-intensive and low-value-added industries, and serving as the workforce of developed economies.
- Certain countries, unwilling to engage in direct confrontation with the US, opt for concessions in an attempt to appease it and secure preferential treatment. Facts have proved that making unilateral concessions on economic and trade issues is like “bargaining with a tiger for its skin”, which will only embolden the US to escalate its demands.
- The sobering lessons of the devaluation of the US dollar, the collapse of the Bretton Woods system, and the Plaza Accord should not be ignored. If the world tolerates America’s arbitrary tariff abuses, we risk plunging back into the Great Depression, or even a regression to a lawless jungle where “might makes right”.
- In response to this, China also announced a raise in tariff on the USA, leading to the US halting the implementation of the new tariff for 90 days, pushing other major economies to take a definite stand of action.
A Silver lining for India but a long way to go for our prosperity
- Initially, President Trump announced a 26% reciprocal tariff on India. However, the final executive order’s annexure later revised this to 27%, reflecting a slight upward adjustment in the tariff rate.
- This is significantly lower than tariffs imposed on China (34%), Vietnam (46%), Bangladesh (37%), Thailand (36%), and Indonesia (32%).
- India’s key export sectors like textiles and garments may gain a competitive edge over these nations in the US market.
- Though some nations like Japan, South Korea, and the EU face lower tariffs, they don’t compete directly with India in most export categories.
- Moreover, pharmaceuticals — India’s biggest export to the US — are exempted under the executive order.
- The US’ share of the global GDP, once peaking at roughly 50 per cent, has since dwindled to about 26 per cent. Its foreign trade only accounts for 13 per cent of global trade volume, while the remaining 87 per cent is conducted among over 190 other countries. These nations possess vast potential for cooperation and are fully capable of driving stable growth in the global economy.
- Since the dawn of the 21st century, the rise of developing countries has been the most striking feature of the evolving international landscape. Take BRICS as an example: Its member states now account for nearly half of the global population and one-fifth of world trade. Their contribution to global economic growth exceeds 50 per cent, approximately double that of the G7. In terms of purchasing power parity, the total economic output of BRICS has already surpassed that of the G7.
Way forward:
- Talks with USA:
- Scope for Bilateral Negotiation
- The Trump administration has left room for revision of tariffs if trade concerns are addressed.
- India is already in talks with the US for a bilateral trade deal, aiming to finalize the first phase by October.
- Teaming up with other developing countries like China:
- China and India share the common goal of development and revitalisation. China is actively promoting high-quality development, while India is committed to realising the vision of “Viksit Bharat 2047”. As the only two nations with populations exceeding one billion, the convergence of the Chinese and Indian markets could generate a synergistic “1+1=11” multiplier effect. The IMF predicts that over the next five years, China and India together will contribute 36 per cent to global economic growth — more than all G7 countries combined.
- Both India and China can jointly push for multilateralism in the global order.