How India should respond to Trump’s tariff threat

When US President Donald Trump announced double -digit rates in countries around the world, which he called a “liberation day” for American trade, it rowed world markets. Although Trump has since announced a “break” for the rates, the definitive solution of the tariff threat will depend on “tailor -made” negotiations between the White House and any targeted country.

India was confronted with a rate percentage of 26 percent under the original announcement, which has now been reduced to 10 percent in the midst of the 90-day break. India needs a number of innovative solutions to have a chance instead of sticking to the usual bureaucratic ways of negotiation, which can cause a serious setback in its growth process. Any possible retribution is excluded because the United States has escalation – Dominance because of its 10 times larger GDP and consumer market. Instead, India should drop all non-agricultural rates for the entry of the US to zero.

There are several advantages of such an approach. Firstly, there would be little change in the import account of India because of the high costs of goods manufactured by the US; Even without rates, they do not remain competitive. However, dropping rates would help with the export and production of India, even if the United States eventually scratches his threat of the “Liberation Day” since the leadership of India economists have long believed A decrease in rates is needed to stimulate exports. Finally, such an offer to Trump India could save a potential economic decline in view of the size of Trump’s rates – even the reduced rate of 10 percent is worrying – and the future growth and employment trajectory of India, which is very American dependent. This is an offer Vietnam and Cambodia have already done Donald Trump, and he is Look positively And willing to close deals.

India’s trade surplus in goods with the United States, on $ 45.7 billion In 2024 it may not be as great as Vietnam ($ 123 billion), but it is just as crucial for the employment of India, price stability, stock market and the value of its currency. Alarming, what is at stake is even more important than the goods trade: that of India Export of servicesthat one exceptional increase (Possibly this year $ 400 billion at the top) and the key will be to that of the country Future growth And employment. If Trump’s attention were to go here, he could close the door on this development path. Indian software companies such as Infosys, TCS, Wipro, etc. Drive on export to the United States, and their weight in India still blown stock market And the sentiment it drives is crucial.

Just crucial are the Global Capability Centers That American companies Such as Google, Microsoft, JP Morgan, Goldman Sachs, Citi etc. are extensive in India. Only GCCs work directly in service 2 million people. Directly and through the multiplier effect, these GCCs together with software companies are Huge work Generators for the youth of India who have few other good options. Every decline of these opportunities would greatly increase the enormous brain drain of India.

Indians had celebrated that medicines have been omitted from these last rates announced by the United States, and since almost half of the generic medicines sold in the US, from India, this has been advertised as a big profit. Trump, however, just has announced that medicines will be the target in the next tariff round that will increase very soon, which will not be subject to the 90-day break over general rates. If India now acts to close a deal, it may be an exception for its pharmaceutical industry.

India’s rates on American oil and gas are already low, and it could considerably increase his purchases there to get more balanced trade. But even on manufactured goods, the costs of reducing Indian rates on the import of American input to zero are virtually negligible. Consider the car industry as an example. Even the cheapest American cars from Chevrolet and Ford are priced at $ 23,000 on the American market, and the average price of a car is $ 49,000. But the average tax on cars is 5 percent in the United States (and it is 0 in some US states), while in India VAT plus road tax etc. a total of 43 percent. That means that the price on the road for an American car that was purchased in India would be $ 32,000 without rates without rates, and that is without transport costs from the US to India.

As soon as they add all of that in Indian rupees, the cheapest cars made in the US would cost in the range of 3 million rupees. An equivalent Indian car costs no more than 1 to 1.5 million rupees. The same calculations for the average American car would result in a on road price of 4.5 million rupees, while the average price of an Indian car is 1.15 million rupees. The Indian consumer simply does not have the capacity to buy by the US manufactured cars, regardless of the rate percentage. This applies in the entire range of manufactured products, so the fall from rates to zero for goods manufactured by the US. If the fear is a stream of import that stimulates Indian counterparts outside of company, that simply does not happen with American manufacturers.

At the same time, it is the consensus of Indian economists in the spectrum – of Arvind Panagariya And Arvind Subramanium Unpleasant Raghuram Rajan And Montek Singh Ahluwalia – that India, which has been increasing its rates since 2014, must start instead with dropping them so that the input costs in the export produced can fall. This is on top of the fact that some competition would improve India’s own product quality and serve to improve the country’s export. This does not even include the argument for the well -being of the consumer – an important point, because India has since always presented independence to its domestic consumers.

India has a difficult experience to exhaust when making his decision. When the clothing industry shifted to synthetic yarns in the era of globalization and fast fashion, India imposed rates on synthetic yarn To favor a very rich industrial. The result was that India lost it competitive capacity in the export of textile – and the corresponding massive employment that the sector once provided. India must avoid repeating this error.

It is only in agriculture that India has to keep some rates to protect its farmers, considering how poor they are and the subsidies that American farmers receive. But even here some rationalization is in place. India’s agricultural ratesWhich can go on average 113 percent and an increase of 300 percent can be considerably reduced without influencing small and medium -sized farmers.

All in all, in the light of the tendency of Trump for rates, India could end very well without some people thinking about the box. Thinking and worn, however, can convert this crisis into an opportunity and an excuse to do what India should have done a long time ago.