Reciprocal and retaliatory tariffs are imposed by countries to match hikes in duties or high tariffs by trading partners.
US President Donald Trump has set in motion his plan to impose reciprocal tariffs on imports and has asserted that Washington will not spare India from reciprocal tariffs. The move is expected to further deepen the global trade war. But how much impact US’s reciprocal tariffs will have in India? Before talking about it, let’s understand some common terms.
What are reciprocal and retaliatory tariffs?
Normally, both can be used synonymously. They are imposed by countries to match hikes in duties or high tariffs by trading partners. For example, when in 2018, the US imposed higher duties on certain steel and aluminium products, India retaliated by raising tariffs on 29 US products, recovering equivalent revenue.
Why do countries impose tariffs?
These tariffs are imposed to make imported goods expensive and in turn, promote domestic manufacturing and job creation. It also protects domestic players from cheaper imports.
Why US President Donald Trump is talking about imposing reciprocal tariffs?
The United States is facing huge trade imbalances with countries, especially with China. With India, the US has a trade deficit of USD 35.31 billion in goods in 2023-24. To bridge this gap, the US President is imposing these duties.
How will impact reciprocal tariffs impact India?
According to S&P Global Ratings, India will be less impacted by the proposed US reciprocal tariff as the country’s economy is mainly driven by domestic demand, and has substantial services exports, which is not going to be targeted by the Trump Administration.
S&P Global Ratings, Economist Asia-Pacific, Vishrut Rana said the reciprocal tariff will hurt countries like Vietnam, South Korea, Taiwan more as they have high trade surplus with the US.
The Indian economy has two mitigating factors — greater reliance on domestic economy and larger services trade with the US, which is not likely to be tariffed.
However, textiles and to some extent chemicals are most at risk of higher tariffs.
“If we were to reimagine that scenario for the first Trump administration to unfold again, I think overall, the impact on India should be quite minimal,” Phua added.
Earlier in 2018 under the Presidency of Donald Trump, Washington had imposed an additional 25 per cent import duty on steel products and 10 per cent on certain aluminium products. In retaliation, India in June 2019, imposed additional customs duties on 28 American products.
More than five years after the initial tariffs were imposed, on July 3, 2023, the US removed tariffs on steel and aluminium imports from India.
With PTI inputs
