Trump’s Reciprocal Tariffs Will Hit Indian Trade—And American Consumers Too

The past week’s events have been dominated, once again, by US president Donald Trump. He has gleefully levied tariffs of 25% on imports from Canada and Mexico, and 20% on imports from China, renamed the Gulf of Mexico as the Gulf of America, announced that he is taking over the Panama Canal, built with American blood and treasure but given away to Panama by President Carter in a bout of idiocy that, according to the Trumpian worldview, tends to afflict people who are not Trump. President Trump also extended a warm welcome to the people of Greenland to join the United States, bringing with them their vast territory of strategic importance to the United States and bearing critical minerals.

The markets tanked in the US and recovered later when the president suspended tariffs on cars and parts for one month, giving US automakers time to set up capacity at home instead of in Canada and Mexico. Gold prices continued on their bullish journey as the need to hedge against volatility in share prices stays strong.

Tit For Tat Tariffs

Canada and China have announced retaliatory tariffs on American goods. Mexico has put off revealing its own retaliatory tariffs to Sunday but has declared that while it is open to cooperation and collaboration, it says no to subjugation and intervention. Canadians are cancelling planned visits to Disneyland and the Grand Canyon. The Governors of Canadian provinces sense the legitimate indignation of ordinary Canadians at Trump’s betrayal of the two nations’ longstanding friendship and alliance, and do not want to let the outgoing Prime Minister, Justin Trudeau, hog all the glory of standing up to the Ugly American, and are announcing their own state-level retaliatory steps.

China is targeting American agricultural imports from states that have voted Trump to drive the stupidity of Trump’s policies home to his voters. China imports pork and pig feed on a large scale, and switching from US producers to Brazilian and other South American producers is entirely viable and constitutes a credible defensive measure.

Eyes On India

In his long address to the US Congress on Tuesday, president Trump once again named India as a major tariff offender and reiterated his intention to deploy a regime of reciprocal tariffs against India. How reciprocal tariffs would affect India depends on whether the tariffs taken up apply to classes of goods or to specific items. If they apply to classes of goods, say fruit, rather than disaggregating fruit into apples, which India does not export to the US, and oranges, which India does export to the US, reciprocal tariffs could, indeed, curtail Indian exports. Indian officials have time till April to negotiate how reciprocal tariffs would be designed.

However, in the case of sectors such as automobile components, the fear of American reciprocal tariffs doing much damage to Indian exports might be exaggerated. It is not India alone that is being subjected to tariffs. Other major producers of automobile components are also being slapped with tariffs, whether China, Mexico or South Korea.

If US car assembly lines require components from outside America, they have to get them, even if they have to bear the higher import duties placed on them by the US government. It is only if some producers manage to route their exports through third countries that do not face any punitive American tariffs, even as Indian exporters are left flatfooted, would there be an actual dent in Indian exports. Otherwise, the net effect of the Trump tariffs would be to increase the cost of American cars for American consumers.

The US has moved to stop military aid and intelligence sharing with Ukraine. Ukraine president Zelensky has signalled surrender to Trump, announcing that Ukraine is willing to negotiate peace and sign the minerals deal that Trump has been demanding, though the precise terms that Ukraine would be willing to accept are unknown.

The rest of the so-called Free World looks on aghast at the sight of their supposed leader blackmailing Ukraine at a moment of its extreme vulnerability. Japan and South Korea, key US allies in the far East, would definitely rejig their defence outlays to acquire the degree of self-reliance they would need to escape a similar fate in the future.

The tendency towards multipolarity strengthens with every passing day of America’s Trump presidency.

Disturbing Numbers

In India, the National Statistics Office released revised GDP numbers for the current year’s output and for the previous two years as well. All numbers have been revised upwards, rather steeply in the case of the GDP number for 2023-24. After the revisions, the likely GDP for 2024-25 stands 29.3% higher than the GDP for the pre-Covid year of 2019-20. That represents a compound average growth rate of 5.3% for the next five years, better than China’s 4.7% over four years since 2019.

The disturbing factor about the national income numbers is that the ratio of gross fixed capital formation to GDP, the crucial number that indicates the investment stimulus the economy receives, remains below 30% in 2024-25 as well. This shows that there is still scope for the government to step up investment in the economy, both by its own investment and by means of policy to induce private sector investment in the economy. The finance minister spoke of public-private partnership during her Budget speech, but there has been little by way of any policy announcement subsequently.

The Reserve Bank of India has announced its intent to inject additional liquidity of Rs 1.9 lakh crore into the system and has made it easier for banks and non-banking finance companies to lend money to individuals and small businesses. Most tiny and unincorporated enterprises come across as individuals, and their credit offtake is mixed up with that of individual credit.

It is to be hoped that the easing of credit for small borrowers would result in additional spending by retail consumers, boosting economic activity.