The tariff challenge

India has stoically accepted US President Donald Trump’s reciprocal tariffs, unlike the European Union, China and Canada, which are gearing up to take countermeasures to protect their economic interests. The silver lining for India is that its main competitors — China, Vietnam, Bangladesh and Thailand — have been burdened with far higher levies. New Delhi is also hoping that the bilateral trade agreement being worked out with Washington will help the domestic industry cope with the impact of the tariff hike. So, this is an opportunity in adversity for India, which needs to improve ease of doing business and invest much more in infrastructure to reap dividends.

A similar opportunity had come India’s way when the Covid-19 pandemic slowed down China’s production juggernaut. Beijing’s prolonged zero-Covid policy prompted the US and other Western nations to explore alternatives, but countries like Vietnam and Thailand outshone India in making the most of the disruptions to global supply chains. This time, India should be better prepared to wrest the initiative. Much will depend on the response of nations hit harder by tariffs compared to India. It’s a worrisome prospect that the likes of China and Vietnam may redirect their previously US-bound exports to India, leading to an influx of low-cost goods. India is already swamped with Chinese stuff — the country’s trade deficit surged to $85 billion in the 2023-24 financial year, with exports to China on the decline.

Trump is bent on correcting America’s huge trade imbalance with countries such as China and India. However, New Delhi is not doing much to bridge the trade gap with Beijing, except imposing anti-dumping duty on some Chinese goods in a bid to shield domestic players from cheap imports from the neighbouring country. The game plan to soften the blow dealt by Trump’s tariffs should go hand in hand with efforts to ensure that the dragon doesn’t overwhelm the elephant in the trade jungle.

Editorials