Opinion: Opinion | India Has A Rare Opportunity In Trump Tariffs

On April 2, US President Donald Trump threw a gauntlet to the world and the post-1945 US-constructed global order with across-the-board and significant country-specific tariffs. The tariff rates were higher than what was anticipated even by Trump's key business supporters in the US. Markets reacted negatively worldwide, falling 10% in America. The US Federal Reserve is now expected to hold back on any interest rate cuts, anticipating an inflationary impact. Analytical comments are comparing the disruption to, potentially, the Great Depression of the 1930s.

While there is global anger and anxiety, most countries have so far refrained from retaliatory action, though they have asserted their right to do so. China, however, is among the few that have already declared matching reciprocal tariffs of 34% on imports from the US. Only, it exports far more than it imports. Beijing's aim is more to impose political pain on Trump by cutting back supplies from his supporters, particularly in the US agriculture belt.

A Divided World

Voices in the European Union are divided, with the European Commission articulating the need for retaliation, though many leading countries, including Germany and France, are currently undergoing their own political instability and transition. They have thus preferred a cautious approach and negotiations to bring down the rates rather than getting into competitive escalation. Canada and Mexico, already targets of specific tariffs on steel and aluminum imports, were spared the April 2 across-the-board 10% tariffs. No doubt, these were on account of enforcement difficulties that would arise given the deep supply chain integration under the US-Mexico-Canada Agreement (USMCA) finalised in Trump's first term.

The Prime Minister of Singapore, meanwhile, in an address to his country, declared the current global order dead and warned of the need to prepare for adjustments. He said smaller countries would be left with little bargaining power if, in the next phase, trade agreements are negotiated bilaterally rather than through multilaterally agreed rules and norms.

Growing Republican Control

There are many lessons that other countries will need to draw as the US veers away from globalisation of trade and production, precipitated by imbalances flowing from China's misuse of WTO (World Trade Organization) provisions, which has concentrated as much as 32% of global manufacturing in the country through subsidies and forced technology transfers. We should expect continued policy unpredictability from the US as the impact of its measures is assessed for domestic political and economic gain. There are divisions among parties and businesses about the right approach, and deep polarisation in US society. Already, protests against government policies have begun.

Nonetheless, Trump's core base remains with him, due to which Republicans have not yet come out in any effective or large-scale opposition. Also, with Republicans in control of both houses of the US Congress, the system of checks and balances envisaged in the US Constitution is not entirely in place at present. Courts and their decisions are being politically challenged through non-cooperation or threats of impeachment. Persons with radical right-wing views are seen as having outsized influence on personnel and policy decisions, with one such figure, Laura Loomer, seen as being responsible for the recent firing of several National Security Council officials, as well as of Timothy Hugh, the Director-General of the US National Security Agency.

The February Meeting

India, no doubt, has to weigh its own response carefully. The US is its largest trading partner at $200 billion, with a $45 billion surplus being in India's favor. In the past, several countries, including China, the Republic of Korea, Japan, and many in Europe, grew due to substantial access to the US market. The same opportunity will not be available for some time now, given the current political climate in the US around trade and distribution of production. It would be important to work out a bilateral, multi-sectoral free trade agreement to get around the new US tariffs and gain market access beyond competitors. The 54% overall tariffs on China and 46% on Vietnam suggest possibilities for competitive advantage, against the 26% tariffs Indian products face. Following the Indian Prime Minister's meeting with Trump in Washington DC on February 13, both countries announced an agreement to work towards a trade agreement and complete its first tranche by the fall of this year. Negotiations have commenced, with a visit of the Indian Commerce Minister to the US, and, subsequently, of an Assistant US Trade Representative to India.

According to reports, following a broad understanding on the approach to be taken, the two sides will now get down to detailed, sector-specific discussions. If a first tranche is indeed successfully concluded, we can expect a Trump visit to India later this year for a Quad Summit. In that case, there will be pressure on both systems to generate more positive opportunities for cooperation.

Room To Wiggle

In January 2023, in the Biden era, the US and India had launched a major new Initiative on Critical and Emerging Technologies (iCET), seeking to deepen cooperation in AI, quantum technology, cyberspace, 6G, biotechnology, semiconductors, defence and space. The aim was to work on co-development of technologies, leading to production-sharing and, subsequently, sectoral trading facilitation. The semiconductor space saw some progress with the announcement of new US investments in India, while in defence, things moved forward with the launch of INDUS-X (India-US Defense Acceleration Ecosystem). In the space sector, a decision was taken, inter alia, to launch a joint mission to the International Space Station. The current Trump administration, while walking away from many Biden-era initiatives, has, notably, kept the essence of iCET, though with a rebranded name: ‘TRUST', which stands for Transforming the Relationship Using Strategic Technologies. This means there is potential for continued deepening of technology partnerships to mutual advantage and creating new opportunities for promoting sector-focused trade.

Despite the tremendous disruption being caused by the latest US tariffs and trade policies, America will want to retain its status as the leading global economic and technology player. While it has taken measures against countries across the board, including its key allies and partners, such as Japan and various European countries, it has identified China as its main economic, technological and military challenge globally, one with the intent and capability to replace the US in the international system. US policymakers and businesses recognise that they need a partnership with India's 1.4 billion people as well as with its tech-human capital to take on the China challenge. Therein will lie the opportunity for India, despite all the uncertainty and upheaval currently.

(The author is a former Indian ambassador to the US, France and Israel)

Disclaimer: These are the personal opinions of the author

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