While China, which has always been in Trump’s cross hairs, has much to worry about the Trump presidency, India has found Trump to be less inimical towards it and in several ways he has been rather friendly. He has openly praised Indians and Prime Minister Narendra Modi and his presidency is largely seen as a positive for India in geopolitical terms. But India is unable to gauge how much, if at all, his trade policies will hurt India.
Trump’s wild threats
Trump recently labeled India as “the biggest charger of tariffs,” referring to the country’s relatively high tariff rates on imports from the US. According to World Trade Organization (WTO) data, India’s tariff rate on US imports increased to 9.5 per cent in 2022, although it has since rolled back retaliatory tariffs on key US products like apples and other agricultural goods in September 2023.
Yesterday, typically in a social media post, Trump warned BRICS nations — Brazil, Russia, India, China, and South Africa — of 100% tariffs on their exports to the US if they pursue efforts to replace the US dollar in global trade. Trump said that any attempt by BRICS to create a new currency or support alternatives to the dollar would lead to severe consequences. “The idea that the BRICS countries are trying to move away from the dollar while we stand by and watch is OVER,” Trump wrote. “They can go find another ‘sucker!’” Trump said while adding, “There is no chance that the BRICS will replace the U.S. Dollar in International Trade, and any Country that tries should wave goodbye to America.”
In his first term, when he had described India as a “tariff king”, Trump went on to increase import duty on steel and aluminum by 10-25%, invoking national security provisions. The duty impacted 2.3% of India’s trade with the US, and the government responded with retaliatory tariffs on almonds, apples, lentils and steel after preferences were also withdrawn by the Trump administration. Iconic Harley-Davidson motorcycle became Trump’s reference point for criticising what he saw as a lopsided trade relation with India.
Trump loved to use tariffs on foreign goods during his first presidency. But their impact was barely noticeable in the overall economy, even if their aftershocks were clear in specific industries, as per an AP report. The data show they never fully delivered on his promised factory jobs. Nor did they provoke the avalanche of inflation that critics feared. This time, though, his tariff threats might be different.
Uncertainty in India
In case of China, it’s almost definite that Trump will hit it with tariffs. But it’s leas clear in case of India because Trump is seen to be an India supporter on the whole and his presidency is being seen as a net positive for India. A few days ago, Commerce and industry minister Piyush Goyal Thursday termed the US President-elect Donald Trump as a “friend of India” and brushed aside apprehensions that the new administration may impose some tariffs on Indian goods, saying there was no need to “jump the gun”.”We need not jump the gun and let the new government take charge and express their formal and official view. To the best of my understanding of the situation and my own experience with Trump’s administration, I do not foresee any problem whatsoever,” Goyal said. Probably, Goyal was discounting Trump’s habit of promising radical measures and then making a U-turn or forgetting them. However, this time, the world will deal with a wiser Trump with the experience of the previous term.
Experts have stated that Indian exporters may face high customs duties for goods like automobiles, textiles and pharmaceuticals, if the new US administration decides to pursue the ‘America First’ agenda.
The commerce ministry is reviewing various aspects of India-US trade relations focusing on implications of statements made by Trump during his election campaign and after the results, an official has told PTI. The official added that there are no irritants in the relations between the two countries that can lead to discriminatory tariffs against India.
According to a recent analysis from Morgan Stanley, India and Japan are relatively shielded from the risks posed by Trump’s tariffs, The investment bank expects structural tailwinds and the continuation of favourable policy mixes in both Asian countries to help offset the potential headwinds posed by rising tariffs. However, the international brokerage’s Chief Economist for India, Upasana Chachra, estimates that a 10 per cent increase in tariffs on imports from India could lead to a 30 basis point (bps) reduction in India’s growth. This estimate, however, does not account for the indirect impact that higher tariffs could have on corporate confidence and capital expenditure (capex).
“Trump’s threat to impose 100% tariffs on countries adopting a BRICS currency is unrealistic and more symbolic than practical. For India, the prudent approach is to focus on making local currency trading workable by establishing a transparent and open currency exchange,” said GTRI Founder Ajay Srivastava. India’s best interests lie neither in the domination of the US dollar nor in fully adopting a BRICS currency at this stage, Srivastava noted, adding that no single country, including the US, can unilaterally dictate global economic policies without facing repercussions.
Former RBI Governor Duvvuri Subbarao has said that Trump’s warning that BRICS countries will face 100 per cent tariffs if they choose to move away from the US dollar is unclear to what extent he will carry out his threat, as it remains to be seen if the US law permits such an action. He also said even for BRICS, there are internal differences about bringing out an alternative to the US dollar. India’s Foreign Minister S. Jaishankar has stated that de-dollarisation is not part of India’s economic policy or strategy. Instead, India has explored alternatives when trade partners do not accept the dollar or when specific trade policies create obstacles.
Given Trump’s volatile statements and his affinity to India, there is a lot of uncertainty about the impact of his proposed tariff.
(With inputs from agencies)
