Impact of US President Trump's Reciprocal Tariffs
The unveiling of the reciprocal tariffs policy by US President Donald Trump has caused significant disruption in the global trading system, reminiscent of the Smoot-Hawley Tariff Act of 1930 which had historically led to the collapse of global trade.
Overview of Tariffs Imposed
- Base Tariff: A 10% tariff effective from April 5.
- Country-specific Tariff: Effective from April 9, with varying rates for different countries.
Affected Countries and Tariff Rates
- India: 27% reciprocal tariff.
- China: 34% additional tariff on top of an existing 20%.
- Vietnam: 46% tariff.
These countries, despite having lower average import tariffs, face higher reciprocal tariffs compared to India.
Exemptions and Reactions
- Exempted Goods: Certain critical minerals, energy products, semiconductors, and pharmaceuticals.
- Potential Reactions:
- Retaliation: China has indicated the possibility of countermeasures to protect its interests.
- Negotiation: Australia, for instance, has opted against imposing reciprocal tariffs.
Potential Economic Consequences
JP Morgan notes the potential for a significant macroeconomic shock, with risks of the US and global economies slipping into recession if these tariffs persist.
India's Position and Strategy
- Current negotiations with the US for a trade deal.
- Recent accommodative actions by India:
- Reducing tariffs on high-end cars and high-capacity motorcycles.
- Eliminating the equalisation levy.
- India is advised to pursue a broader agenda for comprehensive trade reform.
