United States' potential escalation of tariffs sparks concern in India
The United States President Donald Trump has threatened to increase import tariffs from 25% to 50% on goods from India, a move that could significantly impact the competitiveness of Indian exports in the US market.
If the tariff increase is implemented, Indian goods would become substantially more expensive for US consumers and importers compared to goods from other countries, potentially redirecting US imports away from India. This could lead to a decline in export volumes, negatively affecting sectors reliant on US demand and resulting in job losses in export-oriented industries due to decreased production needs.
Currently, the US has imposed a 25% reciprocal tariff on Indian imports intended to pressure India on market openness. Doubling the tariff to 50% would exacerbate these effects, making Indian goods even less competitive in the US market.
The consequences of such a tariff hike include an export decline, employment impact, economic ripple effects, and a potential strain on US-India trade relations. The export decline would result from the increased cost of Indian products in the US, decreasing demand and exports. Employment impact would be felt in sectors such as textiles, engineering goods, and pharmaceuticals, where production cuts could lead to job losses. Economic ripple effects would affect suppliers and service industries linked to exports, dampening overall economic growth.
Trade relations between the US and India might also be strained, potentially leading to retaliatory measures or negotiations. Though the exact quantification depends on affected product categories and the elasticity of demand, the broad pattern from trade economics and previous tariff hikes suggests sizeable negative consequences on both Indian exports and employment in export sectors.
It's worth noting that the value of India's exports to the US does not include crude oil. India is not primarily an exporter of goods, but it still ships significant amounts to the US. The threatened tariff increase is in response to India's continued purchase of Russian oil.
India needs to find alternatives to replace approximately one-third of its foreign oil supply by August 27. If the tariff increase is implemented, it could potentially strip Moscow of revenue for its military offensive in Ukraine.
Many Indian exporters are scrambling for options to mitigate the fallout from the potential tariff increase. Economist Garima Kapoor from Elara Securities stated that at a 50% tariff, no product from India can stand any competitive edge. The potential tariff increase is not limited to oil imports but also extends to other goods exported from India to the US.
In 2024, India exported goods worth approximately US$87 billion to the United States. The potential tariff increase could potentially lead to a decrease in the value of India's exports to the US, impacting the Indian economy significantly.
- The potential tariff increase could lead to a decrease in Indian exports to the US, particularly in sectors such as textiles, engineering goods, and pharmaceuticals, possibly leading to job losses in export-oriented industries due to decreased production needs.
- The finance and general-news industries are closely monitoring the potential tariff increase between the US and India, as it could significantly impact the competitiveness of Indian exports in the US market and have broader economic implications for both countries.
- The top stories in the industry section of various news outlets recently include discussions about the potential increase in import tariffs from 25% to 50% on goods from India, and the potential impact this could have on the US economy, US-India trade relations, and the competitiveness of Indian exports in the US market.
