Trade overtures: India should support exporters, affected businesses

With the US imposing steep tariffs on Indian exports, New Delhi must support affected firms while pursuing new markets, as trade talks with Washington remain uncertain

In a world where the biggest power has abandoned the well-accepted playbook, projecting future outcomes, even directionally, has become extremely difficult. The present state of United States-India relations would have been unimaginable at any point in recent decades. Similarly, it is difficult to predict where things will be two quarters from now. America has imposed a prohibitive tariff of 50 per cent on imports from India, which will likely have a significant impact on the Indian economy, and the broader implications can go much beyond trade relations. However, recent statements by United States (US) President Donald Trump suggest that all may not be lost. In a statement this week, for instance, Mr Trump announced that India and the US were continuing negotiations and that he was looking forward to speaking with Prime Minister Narendra Modi in the coming weeks. 

Mr Trump’s statement indicates both sides are engaged and discussions are taking place, which is encouraging. India has done well to reciprocate the sentiment and build on what could be a fresh start. However, it remains uncertain when India and the US will be able to reach a mutually beneficial trade agreement. Even as Mr Trump has made encouraging statements, it has been reported that the US is pressuring the European Union (EU) to put additional tariffs on India, along with China, for importing Russian crude oil. The problem with US policy, among other things, is that it is using tariffs to attain geopolitical objectives. But even this line of thinking is incoherent. The US has imposed an additional 25 per cent tariff on India for importing crude oil from Russia, but has not touched China, which is a much bigger importer and has deeper trade relations with Russia. It is thus clear that the onus is on Mr Trump to dial down trade tensions with India, but when that will happen is anyone’s guess. 

Since it is unclear when the US will adjust tariffs or remove the 25 per cent penalty, India needs a strategy to deal with the fallout on exporters. It is likely that US orders for low-margin labour-intensive goods will shift to other countries, and some of those may not come back soon, even if the tariff issue is resolved. Therefore, there is a real risk of closure of firms and large-scale job losses. One aspect of dealing with the situation is India finding other markets. The government is working on this, but trade agreements, like the one expected with the EU, take time. 

It is thus important to support affected firms for the time being. If they start closing down, it would not be easy to bring them back online even if US tariffs are reduced or if India gets a better deal in other markets. India may end up permanently losing output or export opportunities. The government is reported to be working on a package for exporters. It would do well to announce the measures soon. It will also be important to take inputs from states that are most affected by tariffs. The overall policy incoherence of the US administration has put India in an unfavourable spot. Given the strong and consistently deepening relations between the two countries over the past decades, it is hoped that the trade issue will be resolved soon. However, till that happens, affected businesses should be supported.