US Tariffs on Indian Products and Bilateral Trade Relations

The United States has implemented "secondary tariffs" of 25% on Indian products, excluding certain sectors like pharmaceuticals, semiconductors, mobile phones, lumber, and some chemicals, effective August 27. This is in addition to a "reciprocal tariff" of 25% imposed since August 7.

India’s Response and Trade Negotiations

• India reduced tariffs on products like bourbon, high-end motorcycles, and electric vehicles, while withdrawing the equalisation levy on offshore entities.
• India offered zero or near-zero duty tariffs on a variety of goods, including industrial and some agricultural products, aiming to facilitate negotiation of a bilateral trade agreement.

India’s Trade Stance and Limitations

• Red Lines: India refused to negotiate access to genetically modified foods and certain cereals and dairy products due to concerns about its small and marginal farmers.
• US Focus Shift: The US concern has shifted towards the purchase of Russian oil rather than agricultural products.
• Energy Purchases: India offered to buy more energy from the US to address the trade deficit.

Impact of Tariffs on Indian Exports

• An estimated 55% of India’s $89 billion exports to the US will be affected, primarily in pharmaceuticals, mobile phones, electronic items, engineering goods, gems and jewellery, and textiles.
• Competitors from South and Southeast Asia with lower tariffs may gain an advantage.

Retaliation and Trade Strategy

• Retaliating with higher tariffs could hurt India’s domestic and export markets, and provoke cross-sectoral retaliation in services.
• Despite US pressures, other countries have faced similar tariffs, suggesting limited short-term reprieve for India.

Global Trade and WTO Implications

• The tariffs breach US commitments under WTO rules, including the Most Favoured Nation principle.
• The WTO’s dispute settlement system is non-functional due to the lack of an Appellate Body, thus rendering disputes against the US largely symbolic.

Strategies for India

• Diversify the export basket and destinations to reduce dependency on the US and EU.
• Conclude trade agreements with the EU and deepen existing FTAs with Japan, Korea, ASEAN, and Australia.
• Expand trade with BRICS countries and implement multi-sectoral domestic reforms to stimulate economic growth.

This challenging scenario should be seen as an opportunity for India to reform and enhance its economic strategies, similar to reforms initiated in 1991.