Trump’s “America First” Trade Policy: Reciprocal Tariffs and Its Impact on India:

The most controversial of trade policies, “reciprocal tariffs” included, will no doubt spotlight the rather harsh trade approaches taken in the last few decades. This is set to be the norm starting the 2nd of April.

If anything, this “unauthorized” tariff is implied to assist in having “balance” in trade between US and its trading partners. This is rather absurd as balance can never be attained in economics.

The “americafirst” trade policy was annoying enough, but now with this added to the mix, the US is bound to have even more friction with their trade partners. It is surprising how in such a civilized world, economic activities can be so rigid.

How would the reciprocal tariffs plan be implemented? This has been addressed through the actions of a bipartisan group of six Republican Congressmen and nine Democrat Congressmen, with the “United States Reciprocal Trade Act” Bill that seeks to presume the President having the discretion to initiate actions concerning implementation of reciprocal tariffs at a given time.

Trump is trying to coax India into purchasing more goods from the US

The proposed bill states that the President can either compel the foreign country to alter its tariff or impose a greater tax on goods coming in from that country if the tariff enforced by another country on a good offered by the US is more than the tax the US government charges when buying the same good from that country.

Considering that the basic goal of applying reciprocal tariffs against India would be to “bind” India into importing more goods to decrease, or in other words alleviate, its large and continuously growing trade surplus in relation to the US, the greater possibility is that the American President would have India increase its tariff.

The Fair and Reciprocal Plan, which initiated the agenda of reciprocal tariffs, pointed out two areas aimed at India, these are agriculture and motorcycle. Later, in his speech to Congress, Trump claimed that India placed a tariff over 100 percent on cars. So far, these are the two sectors that are certainly to be focused on for purpose of putting the reciprocal tariffs into place. The Trump Administration had good reasons for leaning toward these sectors considering the political and economic stakes involved.

The second highest producer of passenger cars in 2023 was US and was ranked right after China and along with Europe, the US is automobile’s greatest export market. It was the fifth largest car exporter, but in the past years, the Trump Administration aimed a big part of its trade policy at domestic car manufacturing. The US passenger car industry was the second highest earned revenues from exports after civil that aerospace industry products. Reciprocal tariffs seem to be the new focus for the administration, but it is still unclear whether India will budge and lower automobile tariffs. This new focus from the Trump Administration would, ideally, strengthen their ability to dominate in the international market and fuel the growth of their automobile industry.

India's agricultural tariffs will be under observation

Regarding agriculture, the United States has been one of the key exporters of most cereals such as wheat, maize, and soybeans. There was a time that the United States was considered one of the top two wheat exporters, a position they lost after COVID-19, however, they remain the top exporter of maize and second largest for soybeans after Brazil. This is also the reason why the USA’s agribusiness has set its eyes on shifting India’s market towards itself, and why Trump trying to force India open with ‘reciprocal’ tariffs makes sense.

It should be noted that this use of reciprocal tariffs, if they are in place, will not be limited to the two industries mentioned above. Many other industries, particularly those with considerable export market potential from the United States, are likely to be incorporated in the Trump Administration’s reciprocal tariffs scheme. In this sense, electronics and pharmaceuticals would seem to qualify, most probably, because the difference in the tariffs compared to India is great.

These two industries are vital for India, as they not only continue to export and employ people, but work in tandem with agriculture. India imports cheap generics, which are necessary to bring down the expenses associated with providing healthcare. More importantly, Indian pharmaceutical companies dispense healthcare, supporting the economy of the developed nations in turn.

According to the consulting firm IQVIA, American patients are estimated to consume approximately 50% generics produced in India. The Indian generics were also responsible for an outstanding $219b of remaining Indian healthcare expenses in 2022. Once again validating the saying that in a trade war, everyone holds the short end of the stick.