Reciprocal Tariffs by U.S. may not hurt India much, says GTRI

Sub :Eco

Sec: External sector

Why in News?

The US has introduced “reciprocal tariffs” to match or offset tariffs imposed by its trading partners, signalling a shift from WTO trade norms. This move aims to address trade imbalances and protect US domestic industries.
India’s exports may not be significantly affected due to differences in export profiles between the two countries, as per GTRI.

Key Insights

How reciprocal tariffs has minimal impact on India

As per Global Trade Research Initiative (GTRI) – U.S. tariffs will have limited impact on India, since India’s export composition is different from the U.S. imports. Example – Pistachios Case – If the U.S. imposes a 50% reciprocal tariff on Indian pistachios, India remains unaffected as it does not export pistachios to the U.S.
For 75% of U.S. exports to India, the average tariff is less than 5% (India levies low duties on several U.S. imports.)
Indian textiles and footwear already face 15%–35% tariffs in the U.S., impacting labor-intensive industries.

Key Concepts:

Reciprocal Tariff – A tariff matching the rates other countries apply to US exports.

Objective: To create a fair and balanced trade system.

How Does it Work?

Tariff Matching: US will mirror tariffs imposed on its goods.
Subsidy Factor: Export subsidies, like India’s, will be considered in tariff calculation.
No Special Treatment: Developing nations, including India, may lose preferential tariff relaxations.

Impact on India:

Costlier Exports: US tariffs on textiles, pharmaceuticals, and auto parts may rise.
Trade Deficit concerns: India might import more US goods (e.g., oil, defense equipment), reducing its trade surplus.
Rupee Pressure: Increased US imports could weaken the rupee.
Atmanirbhar Bharat Impact: May hinder India’s self-reliance efforts.
FDI Boost: US firms may set up local units in India to bypass tariffs.

Key Facts: U.S. as India’s 2nd largest trading partner with a trade surplus of $23.26 billion in India’s favor