India’s Strategic Response to US Reciprocal Tariffs
Trump’s Reciprocal Tariffs: India Faces 27% Levy
On April 2, US President Donald Trump announced reciprocal tariffs on several nations, including India, which was slapped with a 27% duty. Trump declared the day as "Liberation Day," asserting that his tariff policies would bring economic benefits. While India’s tariffs are the lowest among Asian counterparts—Thailand (36%), Indonesia (32%), Vietnam (46%), and China (34%, plus existing 20% duties)—the move has prompted urgent discussions within the Indian government.
India’s Negotiation Strategy:
Avoiding Retaliation, Seeking Reductions
The Commerce Ministry, engaged in deliberations since the announcement, believes India must negotiate rather than retaliate. Officials acknowledge that business-as-usual approaches on tariffs are untenable. Significant duty cuts, particularly on imports like almonds and berries, are under consideration. India plans to leverage **Section 4C** of Trump’s executive order, which allows tariff reductions for nations addressing US economic and national security concerns.
Section 4C: A Pathway to Mitigate Tariff Impact
The clause permits modifications to tariffs if trading partners remedy non-reciprocal trade practices and align with US interests. This offers India an opportunity to negotiate exemptions. However, speed is critical, as other affected nations like Vietnam (facing 46% tariffs) may pursue similar negotiations. India aims to avoid retaliatory measures, fearing economic fallout akin to Canada’s experience.
Corporate and Global Repercussions
While India strategizes, businesses must prepare for higher costs. Trump’s policies also risk backlash: US equity markets may suffer from rising raw material costs and disrupted supply chains. Global leaders, including European Commission Chief Ursula von der Leyen, have condemned the tariffs, warning of economic instability. The EU, China, Japan, and South Korea are preparing countermeasures.
Diplomatic Leverage: India’s Advantage
India’s stronger diplomatic ties with the US provide a negotiating edge. Trump’s reference to PM Modi as a "friend" signals goodwill, despite prior critiques of India’s tariffs. With two rounds of trade talks already held, India aims to stay aligned with US interests while safeguarding its economy.
Conclusion: A Delicate Balancing Act
India’s approach hinges on swift, savvy negotiations under Section 4C. While challenges loom, officials remain cautiously optimistic, citing India’s relatively favorable position compared to peers. The outcome will depend on diplomatic agility and strategic concessions to mitigate tariff impacts.
Anish Jagdish Parashar
Indirect tax india research
Disclaimer :Content above reflect personal views of the author. For investment and trading purposes consult your financial advisor.