The US President imposed heavy theory for India of 50%. The aim behind the introduction of the Geo political shock was to oblige India for signing in the trade agreement with the USA. However, India declined all the advances as the new agreement could affect the rural economy of India. In this past month, India has been dealing with border conflicts with Pakistan and slide issues with Bangladesh are also emerging. India retaliated against Pakistan with "Operation Sindoor" which is proven as a witty diplomatic act of Geopolitics.
How will India be affected?
With a 50% tariff slap, India's export is under the pressure 55 to 60% of exports to the US which incorporates textiles government gems jewellery streams chemicals and leather goods are under the thread of a sharp drop. Economic analysts warn that the USA's such tariffs could trim India's GDP. The southern India meals estimated the 70% of textiles in clothing can be impacted. (Sources: the Times of India) The MSMEs who are responsible for 45% of India total export are at a vulnerable stage.
Global effects
The lost market share in the USA by Indian goods will be filled by other countries like Mexico Bangladesh and so on. This will further induce competition between Asia and Latin America. The global supply chain will be interrupted due to the import substitution by the USA. Is India being the world's top diamond polisher and jewellery exporter tariffs will increase the price however it will give a chance to Africa and the Middle East to capture the market. Moreover, such tariffs can add volatility which further pushes the global investor to reallocate funds. However, rupees depreciation can make Indian export cheaper to the European union, the Middle East and Africa which can lead to inauguration of new flows.
If we look at the perspective through jio politics this unstable relationship between USA and India can we can Indo Pacific strategy but India can get more oil from Russia while we can trade with new emerging markets from the European union and the Middle East.
This is not the first time when the USA acted hostile for tariffs and India is not the only region affected by it. During the year of Great Depression, the USA imposed high tariffs on 20,000 imports whose result is 65% of global trade loss. Between 1970s and 80s USA accused Japan of "Unfair trade" because of Japan's of export-led growth. This induced the USA to impose a Voluntary Export Restraint on Japanese automobiles. The famous trade war between China and USA brought many ups and downs in the global economy. The European union-USA tariff force got settled after 5 years truce where both parties impose heavy tariffs on each other.
If you observe the common pattern of such trade wars we find countries often retaliate. Many times World Trade Organisation has to interfere but the process is lengthy and time consuming. In addition to this, consumers and exporters suffer the most were the positive side of a trade war is that it leads to the diversification of markets.
Trump's policy towards India :
President of Donald Trump actions and his words are mismatched. As during his first term Trump administration remove due to access to Indian goods. India address this situation with the imposition of tariff on US goods. However situation remain stable and trade volume grew. In 2018, us imposter if on steel and Aluminium affecting a major portion of India's exports, to solve this issue WTO was invited and in the end, India got an opportunity for diversification of Steel and Aluminium markets to south east asia. In addition to this, India's generic drug is also the subject of heavy tariff while us continues to pressure for removing the agriculture and Dairy ban (this has escalated the present situation).
In these cases, we see that India has survived every tariff shocks and the shocks often late to explore new markets like UAE, EU and Australia.
What India can do?
Short run measures :
In order to expand aggregate demand the government should promote heavy spending on infrastructure and job creation to absorb job losses from the export sector. Tax concession should be given to MSMEs. As such tariffs lead to exploration of the New Market, insurance should be guaranteed to those exporters were shifting to New Markets.
Medium run measures:
India should negotiate with tariff free corridors and reach the markets of Europe Africa Latin America and ASEAN. Furthermore, India should shift to high value finished products and invest more in ai driven supply chains to meet the demands of global supply chains.
Long run strategy:
Heavy dependency on USA creates an enormous amount of shocks on India. If India comes up with it on domestic products in India can stand as a hub for global South trade. On the other hand diplomacy is crucial, as with this tactics India can use WTO mechanism to address the tariff. Instead of depending on dollars, the promotion of Indian rupee in the region of Asian and Africa should be done.
What India has done?
Indian government has announce tax exempt for good and services which reduces the MSMEs costs. India is diversifying trade by entering Europe, Mexico the Middle East and Australia by negotiating free trade agreements. RBI is also attempting to make "Indian Rupee" more accessible for reducing dollar dependency.
Is America's bipolarity dead?
During the cold war, there were only two bloc, USA and USSR. Later with the collapse of the USSR, us become leading unipolar superpower. However, with more countries gaining their autonomy in trade and innovation it lead to multipolarity. A world where each country has something to offer, China dominating manufacturing while India as an emerging tech and demographic power. Russia enjoying the key role in energy and defence sector.
The USA's tariff policy acts as a blessing in disguise for countries to find new places for trade, leading to creating new trade blocs. We can see that Monopoly once enjoyed by the USA is eroding.
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