By Dr Aparaajita Pandey: The rhetoric by President Trump, well before his political campaign even began, talked about the imposition of high tariffs across the board for the American trade partners. However, the imposition of these harsh tariffs across 150 countries, has come as a shock to most nations, analysts, and people. The decline that stock exchanges around the world have experienced after the announcement are an indication of how this has been perceived.

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As President Trump addressed the Press, his chart that carried the percentage of tariffs levied by the US on the rest of the world, the term reciprocal was reiterated repeatedly. The intent behind these tariffs is being narrated as a step towards balancing the scales and levelling of the playing field, mostly with countries that the US had a trade deficit against. There is also a mention about currency manipulation on the part of other countries. These tariffs, according to President Trump, would finally alleviate the grave suffering that the US has been going through for decades. The concept of a trade deficit has been translated to tariffs by the Trump regime. It is important to note however, that such a translation is extremely simplistic and not necessarily an accurate representation of the US’ bilateral trade with a particular country, the value it carries for the US’ economy, or even the tariffs levied by a country on exports from the US.

While such a reciprocation of tariffs could be explained by some long economic equation for countries like Thailand, China, South Korea since US has a high trade deficit with these nations. However, the US has a positive balance of trade with about a hundred and fifteen countries mentioned on the list like the UK have also been slapped with a 10 per cent tariff. This does show that a lot is left to be analysed and discussed by the US and with the US when it comes to tariffs.

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There is a consensus among economists that the imposition of these tariffs would not automatically and instantaneously rectify the problems with the US’ economy. The US is now attempting to reinvigorate their manufacturing sector, which has for long been outsourced to other countries, as the US has chosen to focus on the services sector. Furthermore, these announcements did come with the rhetoric of the US becoming a manufacturing hub once again and bringing jobs back to the US.

This policy is supposed to be a function of an inward-looking US first foreign policy, and while giving primacy to national interests is a noble thought, US would need to first build capacity for their manufacturing sector which would also not happen overnight. There also needs to be greater discourse among the Trump regime about the pressure these tariffs would put on the American consumer.

Impact of Tariffs

The most immediate impact of the announcement of the reciprocal tariffs by the US was on stock markets around the world. The loss that these markets experienced has the most direct impact on the end consumer around the world. Most trade pundits believe that this trend will continue for some time in the immediate future, since there is uncertainty about the long-term impacts of the tariffs. There is also a lack of clarity about how and when the world would at large achieve some consolidation of economic processes. Several countries including the UK, the EU, and South Korea mentioned that they would be talking to the Trump administration about the tariffs and there could be more changes in the future after the negotiations.

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There is a possibility of this escalating to a trade war with countries like Mexico, China, even the EU. Countries might react with their rates of tariffs on US exports that would mimic the rates imposed by the US, thereby beginning a trade war. This would deepen the rift with the US and would not necessarily point towards a solution.

As mentioned before, the ultimate pinch would be felt by the consumer, and this would happen across sectors from agriculture to tech. As the financial pressure of the tariffs is passed on to the consumer, it could start a chain reaction of global inflation which would have a definitive impact on social and political stability around the world although the magnitude of it would be different in each country depending on their domestic situation.

There is also a large possibility of a shift in global supply chains and a realignment of trade blocks. There would be a need to diversify the supply chains and to reduce dependency on the American markets as well. This could be a chance for the EU to take centerstage in place of the US.

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Another question that lingers in the air is that of the strength and legitimacy of the systems built by and of the existence of global economic organisations like the WTO. This weakening and undermining of their systems would mean either their reduction to mere suggestions or their complete eradication from the present geo economic structure.

It would provide some opportunities for some countries to make a greater contribution towards global supply chains and cement their presence as manufacturing hubs of the world.

Impact on India

A tariff of 27 per cent has been imposed on India, which does destabilise India’s position in the ongoing trade negotiations with the US. The 27 per cent tariff on India does mean that Indian exports to the US would become more expensive but at the same time this tariff is still less than China, Vietnam, and Thailand. The importance of this comparison lies in the fact that there is great possibility of supply chain realignments which does present an opportunity from India to replace these countries as large-scale suppliers of good to the US.

As sectoral analysis of Indian exports to the US reveals that Indian exports like steel, aluminum, pharmaceuticals, and automobiles could become more vulnerable under the new tariff regime. However, textiles present and opportunity as Bangladesh faces 37 per cent tariffs. However, India will have to build capacity in the textile sector. India would have to invest on infrastructure, logistics, and human resources to be able to take advantage of this global economic chaos.

India is presently undergoing trade negotiations with the US, India has pledged 25 billion USD in energy imports. India has also reduced the tariff of whiskey from 150 to a 100 per cent, in addition to completely scrapping the 6 per cent digital tax. These steps should help in strengthening the Indo- US ties, however, a change in the tariff rate is not guaranteed. There is a possibility that the US uses this moment to overturn India’s strict regulations on import of non-GMO products. It remains to be seen what the result of these negotiations will be.

These are uncertain times for global economic systems around the world, but they do offer opportunities for both India and the world. It would be interesting to see what the future holds.

(The author has a PhD from the Centre for the Americas, Jawaharlal Nehru University and is an Asst Professor at the Department of Defence and Strategic Studies, Amity University, NOIDA.)