U.S. Tariff Policies on Steel, Aluminium, and Trade Relations with India

U.S. Tariff Policies on Steel, Aluminium, and Trade Relations with India

Sub :Eco

Sec: Externals sector

Why in News?

• U.S. President Donald Trump has announced 25% tariffs on steel and aluminium imports from multiple countries, including Canada, Mexico, and China.
• The move is expected to impact global trade dynamics, inflation, and bilateral relations with key U.S. trading partners.
• India is also considering lower import duties on U.S. pecan nuts and other farm products to ease trade tensions.

Context and Key Developments

Tariffs on Metal Imports 

• Steel imports to the U.S. will face a 25% tariff.
• Aluminium imports will also be subject to new trade penalties.
• Canada, China, and Mexico are the top suppliers to the U.S. for these metals.

Impact of Trump’s Steel Tariff Threat on India

Impact on Indian Industries and Exports

• A renewed tariff threat raises concerns over loss of competitiveness and export market contraction for Indian steelmakers. Since, US, a major steel consumer, is crucial for Indian exports.

Rise in Steel Imports & Dumping Risks

• Imposition of tariffs by USA is diverting the global steel trade, lead to increase in steel imports into India, may cause price drops and losses for Indian steel producers.
• Asian producers (China, Japan, South Korea) may dump excess steel in India, hurting local manufacturers.
• Chinese steel imports surged 80% in 2024, causing price pressure for Indian steelmakers.

Impact on Global Trade & Inflation

• Currency depreciation concerns: A weaker rupee increases imported inflation risks.
• Global trade tensions: Nations like South Korea are worried about how U.S. tariffs on steel & aluminium will affect their industries.
• Potential for reciprocal tariffs: Trump hinted at imposing new import duties on products from countries that levy higher tariffs on U.S. goods.

India’s Response and Trade Concessions 

• India is considering further reducing import duties on farm products to pacify Trump’s tariff stance.
• India already reduced duties on pecan nuts from 100% to 30% in early 2023.
• During the visit, India will also lobby for restoring India’s preferential trade status under the Generalized System of Preferences (GSP), which was revoked in 2019.
• Indian officials stress that duties on U.S. industrial goods exports to India are already low or zero in many cases.

Safeguard Measures – Aim to provide a level-playing field for domestic players in case of a sudden surge in imports.

Various Safeguard Measures available under WTO:

• Anti-Dumping Duty: Imposed when a foreign company exports a product at a price lower than its home market value, to protect local industries from unfair competition.
• Countervailing Duty: Imposed to counteract subsidies given by foreign governments to their exporters, which distort trade.
• Quotas: Limits the quantity of a particular product that can be imported during a set period.
• Tariffs: Taxes on imported goods to protect domestic industries or raise revenue.

Overview of GSP (Generalized System of Preferences)

The Generalized System of Preferences (GSP) is a U.S. trade program established on January 1, 1976, under the Trade Act of 1974. It grants preferential tariff treatment to exports from developing countries to promote economic growth.

Key Features:

• Duty-Free & Reduced Tariffs – Eligible products from beneficiary countries enjoy lower or zero tariffs in developed markets.
• Non-Reciprocal Basis – Traditionally offered without requiring trade concessions from beneficiary countries.
• Market Access & Concerns – The U.S. has linked GSP to market access and tariff reductions, altering its non-reciprocal nature.

Objectives of GSP:

• Supports economic development by increasing exports from developing nations.
• Helps in trade diversification and sustainable growth.

Benefits of GSP for India: 

• Reduced import duties make Indian products more competitive in the U.S. market.
• Helps Indian exporters gain a stronger foothold in the U.S.
• Enhances profit margins by lowering costs.