The fate of the Trump administration’s tariff offensive would be determined by the way the United States’ key trading partners react to it, experts said. The comments came even as China on Friday retaliated with additional duty of 34% on imports from the US, the same rate as Washington’s latest reciprocal levy on the country.
The European Union may be next to act with new tariffs on the US. The EU was already finalising a first package of tariffs on up to $28.4 billion of US imports in response to US steel and aluminium tariffs that took effect on March 12.
The retaliation by China could invite higher tariffs by the US as promised by Trump. That would mean a virtual impasse on the two-way trade between the world’s two largest economies, a dire prospect for themselves and the rest of the world.
On a large import range of imports from China import duties of 76% are applicable after reciprocal tariffs were announced.
Unlike 2019 when it imposed retaliatory tariffs on steel and aluminium duties, India is out of this game as it is expecting to address the issue of additional 26% tariffs through the Bilateral Trade Agreement (BTA).
“If China, Mexico, Canada and the EU, the four largest trading partners of the US which collectively account for 55% of US imports, mount a coordinated counter-offensive, then Trump might have to necessarily backtrack and relent,” international trade policy and expert on World Trade Organisation (WTO) matters Abhijit Das said.
Some experts feel India should have kept space for dealing with the tariffs from the US. “We have overcommitted ourselves very soon and it is not easy to disengage at this point,” former professor at Jawaharlal Nehru University and now distinguished professor at the Council for Social Development Biswajit Dhar said.
“Trump is seemingly hoping his country’s market power would force others to cut tariffs to mitigate the impact of the reciprocal levies. With many countries issuing conciliatory — rather than aggressive — following the US move, he might have a case. But it is early to say how things will eventually pan out,” Das said.
While economists are predicting big economic costs to the US from these reciprocal tariffs, Sivakumar Ramjee, Executive Director- Indirect Tax at Nangia Andersen LLP said that it will be two years before the US re-evaluates the situation.
For India BTA remains the best option, other experts said. “It is the right time to fast forward the BTA and give concessions where possible for the early conclusion of the first tranche,” Md at Price Waterhouse & Co Anurag Sehgal said.
Apart from BTA the India-US trade dialogue covers a wide range of issues of mutual interest including deepening supply chain integration. Supply chain partnerships and technical collaboration could be a way for more trade between the two countries, Partner at Shardul Amarchand Mangaldas & Co Rudra Kumar Pandey said.
To contain the fallout of tariffs on overall trade the experts suggested more focus on market diversification, especially looking at developing countries that are growing fast. Speeding up FTAs with the EU, UK, South America and Middle East could also help.