Trump's tariff strategy could hurt US more than India: Raghuram Rajan

Raghuram Rajan calls Trump's tariffs a 'self-goal' for the US economy. He believes, the US's broader strategy to reduce imports and boost domestic production, may take time to fully materialise

Former Reserve Bank of India (RBI) Governor Raghuram Rajan on Thursday weighed in on the Trump administration’s decision to impose reciprocal tariffs on about 60 countries, calling it a ‘self-goal’. He further went on to explain how these would have limited impact on India.

 

In an interview to news agency PTI, “Let us recognise that in the short run, this will adversely affect the US economy first and foremost – it is a self-goal as footballers would say. Coming to the effects on other countries, the direct effect of any tariff on India’s exports will be to raise prices for US consumers, reducing their demand, and hence Indian growth.”

 

 

Rajan, who is currently a Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business, further explained why he thinks the tariffs would have ‘smaller’ impact on India.

 

“Of course, to the extent that the US has applied tariffs on other countries also, and India is competing with producers from those countries, the overall effect will be smaller than if the tariffs had been applied only on India – since US consumers will not be able to substitute away to non-tariffed producers,” Rajan said. He believes US’s broader strategy, which aims to reduce imports and boost domestic production, may take time to fully materialise.

 

When asked about the potential impact on India, Rajan suggested that the tariffs could be ‘disinflationary’ for India. With fewer exports heading to the US, India might retain more goods domestically, while countries like China could attempt to target India’s market.

 

Rajan also saw an opportunity for India to turn this crisis into a potential gain by reducing its own tariffs. “That would be beneficial to India regardless of whether it will help us negotiate down US tariffs,” he added.

 

‘A protectionist world, requires clever trading’: Rajan 

While talking about how to look forward, the ex-RBI chief said that the world has become much more protectionist, and therefore India needs to adapt “be more clever about trade,” he told PTI.

He said that more generally, India needs to understand the world has become much more protectionist, so “we have to be more clever about trade”.

“Looking east toward the ASEAN and Japan, looking southwest to Africa, and looking northwest to Europe all make sense,” he said.

He also pointed out the importance of fostering stronger economic ties within South Asia, particularly through SAARC. “That means overcoming political differences. As the world breaks up into regional blocks, South Asia should not be the odd region out,” he said.

 

How much tariff has Trump imposed on India? 

Trump on April 2 unveiled his promise of reciprocal tariffs on trading partners, which includes a 27 per cent additional tariff imposed on imports from India as part of his country-specific tariff structure that will kick in from April 9.

 

The move that includes a baseline 10 per cent tariff on all countries, which takes effect on April 5, is feared to trigger an escalating trade war with likely tectonic shifts in the global economic landscape.

 

Trump framed the tariffs as part of a broader economic strategy to rejuvenate the US economy, calling April 2, 2025, a ‘Liberation Day’ in the US.