Donald Trump's obsession with trade deficits has initiated a huge turnaround in global trade policies, prompting fears over what the outcome would be of his "reciprocal tariffs" policy. US President Trump intends to narrow the trade gap by charging tariffs against nations where there is a considerable trade deficit in favor of the US.
Understanding Reciprocal Tariffs
Tariffs are levies on imported products, raising their prices for local consumers. Trump's policy of reciprocal tariffs aims to end preferential treatment of any nation, with the US charging the same amount of tariffs on imports as other countries charge on US exports. This action is likely to have a huge impact on global trade.
Impact on India
Since India has traditionally imposed high tariffs on US products, it will probably be one of the countries most impacted by Trump's move. Some of the major sectors that could be affected are:
Food Products: Increased tariffs would make Indian food items costlier in the US market.
Textiles and Clothing: Indian textile exports to the US could decrease as a result of higher tariffs.
Electrical Machinery: Indian electrical machinery's competitiveness in the US market may be impacted by higher tariffs.
Gems and Jewellery: Indian gem and jewelry exports to the US can be expected to suffer severely.
Pharmaceuticals: Tariffs' impact on Indian pharmaceutical exports to the US can be huge.
Trump's Goals
Trump's top reason for imposing tariffs is the elimination of trade deficits, which he feels are caused by unfair trade practices. He aims to do this by:
Forcing Countries to Import More US Goods: Persuading countries to purchase American goods in order to offset trade.
Forcing Companies to Establish Manufacturing in the US: Making it more expensive for foreign companies to export to the US, forcing them to set up manufacturing facilities in the country.
Potential Consequences
The retaliatory tariffs policy could result in:
Rupee Depreciation: Increased imports from the US may create a higher demand for dollars, causing the Indian rupee to depreciate.
Impact on Domestic Consumption and GDP Growth: Greater US-goods spending may cap the anticipated GDP growth in India.
Long-term Benefits and Risks: Lower-priced US products may aid Indian consumers, but increased trade relationships with the US could distort India's "Atmanirbhar Bharat" strategy.
Global Trade Implications
Trump's retaliatory tariffs policy can turn back international trade by almost a century, ignoring current World Trade Organization agreements. The policy will result in trade wars, which will damage economies across the globe. The US trade deficit is approaching $1 trillion, while China has a surplus of over $1 trillion, driving Trump to take measures to correct these imbalances ¹.