Steep U.S. tariffs on a variety of Indian products took effect Wednesday, threatening a serious blow to India’s overseas trade in its largest export market.
President Donald Trump had initially announced a 25% tariff on Indian goods. But earlier this month he signed an executive order imposing a further 25% tariff as a result of India’s purchases of Russian oil, bringing the combined tariffs imposed by the U.S. on its ally to 50%.
The Indian government estimates the tariffs will impact $48.2 billion value of exports. Officials have warned the brand new duties could make shipments to the U.S. commercially unviable, triggering job losses and slower economic growth.
India–U.S. trade relations have expanded lately but remain vulnerable to disputes over market access and domestic political pressures. India is considered one of the fastest-growing major global economies and it could face a slowdown consequently.
Sectors to be impacted by US tariffs
Estimates by Recent Delhi-based think tank Global Trade Research Initiative suggest labor-intensive sectors reminiscent of textiles, gems and jewellery, leather goods, food and automobiles shall be hit hardest.
“The brand new tariff regime is a strategic shock that threatens to wipe out India’s long-established presence within the U.S., causing unemployment in export-driven hubs and weakening its role in the commercial value chain,” said Ajay Srivastava, the think tank’s founder and a former Indian trade official.
The U.S. has for now exempted some sectors reminiscent of pharmaceuticals and electronic goods from additional tariffs, bringing some relief for India as its exposure in these sectors is important.
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The Global Trade Research Initiative’s report released Tuesday said Canada could possibly be among the many trading partners that might fill gaps for U.S. buyers as they turn away from Indian agricultural goods, chemicals and metals, despite Trump’s existing tariffs on Canada.
Puran Dawar, a leather footwear exporter in northern India’s Agra city, says the industry would take a considerable hit within the near term unless domestic demand strengthens and other overseas markets buy more Indian goods.
“That is an absolute shock,” said Dawar, whose business with the U.S. has grown lately. Dawar’s clients include the foremost fashion retailer Zara.
Dawar, who can also be the regional chairman of the Council for Leather Exports — an export promotion body — said the U.S. should understand that the steep tariffs will hurt its own consumers.
Groups representing exporters warn that recent import tariffs could hurt India’s small and medium enterprises which are heavily reliant on the American market.
“It’s a difficult situation. Some product lines will simply grow to be unviable overnight,” said Ajay Sahai, director general of the Federation of Indian Export Organizations.
Modi vows to not yield to US pressure
The tariffs come because the U.S. administration continues to push for greater access to India’s agriculture and dairy sectors.
India and the U.S. have held five rounds of negotiations for a bilateral trade agreement, but have yet to achieve a deal. That’s largely because Recent Delhi has resisted opening these sectors to cheaper American imports, citing concerns that doing so would endanger the roles of tens of millions of Indians.
Prime Minister Narendra Modi has vowed to not yield to the pressure.
“For me, the interests of farmers, small businesses and dairy are topmost. My government will ensure they aren’t impacted,” Modi said at a rally this week in his home state of Gujarat.
Modi said the world was witnessing a “politics of economic selfishness.”
A U.S. delegation canceled plans to go to Recent Delhi this week for a sixth round of trade talks.
India plans local reforms to cushion the blow from tariffs
The Indian government has begun working on reforms to spice up local consumption and insulate the economy.
It has moved to alter the products and services tax, or consumption tax, to lower costs for insurance, cars and appliances ahead of the foremost Hindu festival of Diwali in October.
The federal government council will meet early next month to make a decision whether to chop taxes.
The Trade Ministry and Finance Ministry are discussing financial incentives that may include favorable bank loan rates for exporters.
The Trade Ministry can also be weighing steps to expand exports to other regions, particularly Latin America, Africa and Southeast Asia. Trade negotiations underway with the European Union could gain renewed urgency as India works to cut back its dependence on the U.S. market.
Associated Press video journalist Rishi Lekhi contributed to this report.
—With additional files from Global News
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