New Delhi: The White House notification, on Friday, imposing a temporary 10 per cent ad valorem duty on imports to the United States has drawn intense scrutiny in New Delhi, where policymakers and exporters are carefully evaluating the implications for India’s trade interests.
This move, announced by US President Donald Trump under Section 122 of the Trade Act of 1974, will take effect on February 24 and remain in force for 150 days, applying to most imports to the US unless exempted.
From an Indian standpoint, this development is taking place at a very critical time. The United States is one of India’s largest markets, with strong export streams in the categories of pharmaceuticals, engineering goods, electronics, textiles, auto components, and gems and jewellery. An across-the-board hike in tariffs could potentially squeeze the margins of Indian exporters, especially in the price-sensitive segments where a 10 per cent hike in costs could make a difference.
However, whereas the White House has presented this move as a corrective action to remedy what it terms a “serious balance-of-payments deficit” and “rebalance our trade relationships to better serve American workers, farmers, and manufacturers,” Indian industry will be scrutinising the details of exemptions.
Pharmaceuticals and other necessary items are exempt, which may mitigate the impact on India’s large generic drug manufacturers. But other areas, such as engineering and selected electronics, could come under pressure unless exempted.
Trade analysts in India believe that while this action is only temporary, it does indicate a continued preference in the US administration for tariffs as economic instruments. The fact that the suspension of duty-free de minimis levels on low-value shipments and the launch of new Section 301 investigations are being pursued concurrently indicates a larger protectionist agenda.
However, there is also a silver lining to this cloud. If the US action hits countries with more substantial trade surpluses or higher tariff exposure, India could seize the opportunity to rebrand itself as a relatively stable and trustworthy supplier.
With global supply chains already in the process of diversification, the Indian government could seize this moment to fast-track its “Make in India” initiative and attract investment from companies looking for alternative locations to set up manufacturing hubs.
In diplomatic terms, it is expected that India will walk a tight rope. Instead of letting the situation escalate, the Indian government is likely to turn to US trade officials for guidance on exemptions to safeguard its vital export interests.
In view of the growing strategic partnership in the Indo-Pacific region and cooperation in mechanisms such as the Quadrilateral Security Dialogue, it is possible that both countries will attempt to compartmentalise trade tensions from their overall geopolitical relationship.