The Hindu Editorial Analysis- 17th April 2025 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Shaping a response to the U.S.’s reciprocal tariffs

Why in News?

 The United States has implemented new reciprocal tariffs aimed at addressing trade imbalances. These tariffs are expected to impact global trade flows, including countries like India. This move has raised concerns about protectionism and the potential challenges it poses to multilateral trade norms. 

Introduction of New U.S. Tariffs

•  The U.S. has rolled out new reciprocal tariffs that are applied both by country and by commodity. 
•  These tariffs consist of an existing import duty along with an additional country-specific tariff applicable to all goods. 
•  The extra reciprocal tariffs are currently on hold, with a temporary limit of 10% for 90 days, except for one major country. 

Goods Exempted from Additional Tariffs

 Certain key goods are exempt from the additional tariff, including: 

•  Steel and aluminum articles 
•  Autos and auto parts 
•  Copper 
•  Pharmaceuticals 
•  Semiconductors 
•  Lumber 
•  Bullion 
•  Energy products 
•  Critical minerals not readily available in the U.S. 

Impact on Indian Exports

•  India’s overall exports to the U.S. are relatively modest and have been declining in recent years. 
•  The additional 26% tariff will affect different export items in varying degrees. 

 Key Indian exports to the U.S. include: 

• Electrical machinery
• Gems and jewellery
• Machinery
• Mineral fuels
• Iron and steel products
• Pharmaceuticals are currently exempt from the additional tariff. 
• Gems and jewellery may not be severely impacted due to inelastic demand. 
•  The items likely to be most affected include: 
• Electrical machinery
• Mechanical appliances
• Made-up textiles

Competing countries

•  Countries like Vietnam, Cambodia, Bangladesh, and China also face high reciprocal tariffs, which may make India relatively more competitive in certain sectors. 

India’s Strategic Response

•  India imports a significant number of essential goods from the U.S., making any retaliatory tariff potentially harmful to its domestic market. 
•  A strategic response for India could involve increasing imports from the U.S. in areas such as petroleum. This would help reduce India’s reciprocal tariff rate to 11.8%, bringing it closer to the minimum threshold of 10%. 
•  Such a strategy would enable India to shift its import composition without exacerbating the current account deficit. 

Global Trade Concerns and the Role of WTO

•  Aggressive tariff actions by major countries have resulted in significant tariff increases in some instances, ranging from 145% to 245%. 
•  These measures contribute to global trade uncertainty and adversely affect growth prospects. 
•  There is a pressing need for a fair and transparent global trade system characterized by low tariffs. 
•  The World Trade Organization (WTO) should take the lead in efforts to establish a stable global trading environment. 
•  In the interim, regional trade agreements should be pursued as temporary alternatives to foster trade stability.