The United States has imposed a 26% tariff on Indian goods, coinciding with America’s Liberation Day celebrations and part of a broader global tariff strategy. This decision has sparked discussions about its potential impact on the India-US trade relationship and its wider geopolitical implications.
According to analysts, the US justifies the tariff to reduce the trade deficit with India. However, experts argue that India’s economy is not solely reliant on exports to the US, mitigating the potential for catastrophic damage. India’s total exports to the US, encompassing goods and services, amount to approximately $80-85 billion, representing a relatively small percentage of India’s $4.3 trillion GDP.
The primary concern is the potential for other countries to devalue their currencies in response to the US tariffs. This could lead to a global currency war, where nations attempt to offset the increased costs of exports by artificially lowering their currency’s value. While this strategy could mitigate the impact of tariffs on exports, it would also increase the cost of imports.
Experts also highlight the limitations of the US tariff strategy. They argue that the US cannot easily replace certain Indian services, such as IT services, which are integral to American businesses. Moreover, the imposition of tariffs on a wide range of countries suggests a lack of alternative sources for the affected goods. This could lead to increased costs and inflation in the US.
The tariffs are also seen as a potential catalyst for the growth of non-US trading blocs, such as BRICS. As the US imposes tariffs on its traditional trading partners, these countries may seek to diversify their trade relationships and conduct transactions in non-dollar currencies.
The move by the US is seen by some as a negotiating tactic. However, it is also seen as a risk, as it may push other countries to work together outside of the US dollar framework.
The Indian government is expected to adopt a “wait and watch” approach, carefully assessing the situation before taking any retaliatory measures. The focus will be on protecting India’s economic interests while maintaining a balanced trade relationship with the US.
The Indian government is also focusing on strengthening India’s internal economy, which is less reliant on exports. The PLI (Production Linked Incentive) scheme is being used to build up Indian manufacturing.
