India is let off lightly with trump’s import tariff

By Nantoo Banerjee

US President Donald Trump is absolutely right to justify the new tariffs as a necessary step to combat “unfair” import trade practices that have hurt his country’s industries and employment opportunities for decades. Thanks to its own liberal import policy over the last several years, the US has been a favourite merchandise export dumping ground for many countries, including China, Germany, Japan, the Netherlands, the United Kingdom, France, Italy, South Korea, and Canada. India had to struggle hard to sell its wares to the US. One area of Indian exports which have benefited the US and its citizens immensely is a wide range of drugs and pharmaceutical products, which the new Trump tariff has exempted. Trump’s sweeping reciprocal tariffs have also spared India’s export of semiconductors and copper, car and car parts, and bullion and minerals.

India is a major supplier of drugs and pharmaceuticals to the US, as also to the UK, Netherlands, South Africa and Brazil. During FY24, India exported $8.73 billion worth of pharmaceutical products to the USA. This represented nearly 50 percent of India’s global drug exports during the year. India’s semiconductor export to the US may now appear to be small, but it is growing steadily. The US rates India as a reliable partner in the semiconductor industry. Trump’s latest tariff blues thankfully recognise that. The US imports semiconductor devices primarily from Vietnam ($5.25B), Thailand ($4.4B), Malaysia ($3.76B), and Cambodia ($2.47B).

The country’s imports from India are worth around $2 billion. The US and India are strengthening their partnership in the technology sector, with a focus on semiconductors, artificial intelligence, and clean energy. Lately, India and the US established a joint venture to establish a semiconductor fabrication plant in India, focusing on advanced sensing, communication, and power electronics for national security, next-generation telecommunications, and green energy applications. It is encouraging to note that President Trump’s reciprocal tariff policy recognised this aspect.

India is a tiny exporter of automobiles and parts to the US. The US has already imposed a 25 percent import tariff on auto and auto parts. Now, it has spared the Indian auto industry from the additional reciprocal import tariff. On March 26, President Trump announced a sweeping 25 percent tariff on completely built vehicles (CBUs) and auto parts. However, it will have little impact on India’s overall auto and component exports. Last year, India exported a modest $8.9 million worth of vehicles to the US, which is just 0.13 percent of the country’s total auto exports worth $6.98 billion.

Quite understandably, India’s auto exports to the US have been spared additional reciprocal tariff. The imposition of a 26 percent reciprocal import tariff on India is most unlikely to affect India’s growing bilateral trade with the US. Higher reciprocal import taxes imposed on several other countries are indirectly to the benefit of India. With the US and India engaged in a bilateral trade talk now, both the countries may finally opt for a more reasonable tax regime.

To be honest, President Trump may be absolutely right with his strong cowboy-style emotional outburst, though highly unusual for a head of state, saying that “For decades our country has been looted, pillaged, and plundered by nations near and afar – both friend and foe alike. Foreign cheaters have ransacked our factories, and foreign scavengers have torn apart our beautiful American dream.” However, Trump should have also recognised that his country itself should own the blame for the loot of its economy. The USA allowed itself to be screwed by its so-called allies on the trade front, which also benefited some of the top US trading houses such as Walmart, Target, The Home Depot, Lowe’s, and Apple. A number of countries might have cheated the USA, but the braggart America had cheated itself more by allowing tax-free imports to cheaply feed its wealthy citizens.

China took the maximum advantage of the USA’s soft import policy, and also cleverly used Mexico as an additional export route to the US. Official reports suggest that in 2024, the USA’s major bilateral trade partners included Mexico ($776 billion), Canada ($699.6 billion), China (532.4 billion), Germany ($271 billion), Japan ($209 billion), South Korea ($180.8 billion), Taiwan ($145 billion), Vietnam ($136.5 billion) and the UK ($134.6 billion). Barring pharmaceuticals, India’s other items of export include pearls and precious stones, telecom instruments, petroleum products, some auto parts, and ready-made garments. Higher reciprocal import duty will make Indian products more expensive in the US although it may not necessarily open a fresh avenue for manufacturing them in that country. The US president seems to have been wrongly briefed on the impact of import duty on Indian products on domestic production.

The US import data concerning China is quite confusing. For instance, while the USA’s reported trade deficit with China from the beginning of 2018 to 2024 declined from $375 billion to $295 billion, China had reported that its trade surplus with the US increased from $278 billion to $360 billion. China’s data says that its exports actually increased by $91.2 billion, to $524 billion (exports were even higher during the pandemic), exposing an amazingly contradictory bilateral US-China trade record. There has been a big shift in the discrepancy between what the US says it imports from China and what China says it exports to the US.

Simply stated, the US states it buys from China a lot less than what China says it is selling. A downward shift clearly began in 2018, with the difference between the average line and the observed data in 2024 amounting to $158 billion. There has been only a partial offset from a larger positive gap with the rest of the world as the data through 2023 exposed. As a result, there appears to be more than $100 billion in “missing imports” headed for the US when comparing America and the rest of the world’s data, virtually all of which can be attributed to China.

Now, Trump’s China focus is expected to open fresh opportunities for India, although the latter’s export basket is extremely small compared to China’s. The massive retaliatory US import tariff on China may open new avenues of export of some of India-originated consumer goods. China’s communist regime is generally believed to have long practised subsidised exports across the world, mainly to keep its people employed. However, the situation changed overnight for China as it came under special Trump tariff lenses.

China has been slapped with an additional 34 percent import tariff, bringing the total new levies on China this year to 54 percent. Trump also closed a trade loophole that had allowed low-value packages from China to enter the US duty-free. In response, China has imposed a slew of countermeasures, including extra levies of 34 percent on all US goods and export curbs on some rare earths. India could be among the beneficiaries of the deepening trade war between the world’s two biggest economies. (IPA Service)

The post India is let off lightly with trump’s import tariff appeared first on Daily Excelsior.

News