Donald Trump’s cover taxes have put the world on the verge of a possible international trade war. The European Union has vowed a united answer, and China has threatened measures.
Scores agencies like Fitch have warned that the large price hikes could result in lower development, higher prices and possibly a crisis in some parts of the world.
How may India- Asia’s second largest market- navigate these global tremors?
Trump has dealt the most brutal blow to Asian countries, slapping 34 % tariffs on China in addition to the 20 % previously levied. Vietnam and Cambodia will have to give 46 % and 49 % respectively.
In relative terms, at 27 % India has fared better.
But the price is still rough and will greatly influence big “labour intense exports”, says Priyanka Kishore of the consultancy Asia Decoded. ” That will probably have a knock-on impact on domestic desire and title gross domestic product at a time when progress is now stuttering”, said Ms Kishore.
But the new trade realities also throw up opportunities for India.
Its new price divergent with Asian peers may possibly guide to some trade re-routing. ” We can bring the shoes and clothing company from Asiatic peers if we get our work up”, says Nilesh Shah, a senior fund manager.
This may take time nevertheless.
Prime Minister Narendra Modi’s state will therefore have to be strategic in how it navigates the situation.
Foremost, the news really “give the state a greater sense of urgency in wrapping up a business deal with the US”, says Rahul Ahluwalia, a public policy expert who previously worked for a government office. ” The US is our largest export business, so this is significant stuff”.
India exports some$ 91bn ( £69bn ) in goods to the US, which account for 18 % of its overall exports. Hectic trade negotiations have been under approach with a drop date for finish. Ahluwalia says that date could now be compressed and brought forth.
While doing that, India may even develop export markets beyond the US and concentrate on regions where tariffs remain low, such as Europe, Southeast Asia, and Africa, recommends American business research agency GTRI.
In the last couple of years, India has shown a renewed appetite for trade deals, launching free trade agreement (FTA ) talks with a range of countries and blocs, including the European Union and the United Kingdom.
Last year, Delhi signed a$ 100bn free trade agreement with the European Free Trade Association ( EFTA )- a group of four European countries that are not members of the European Union.
Experts say talks with other partners could now be expedited as cracks deepen between the US and many other global economies over Trump’s actions.
But even as trade negotiations carry on with global partners, the government will need a plan on how it deals with the domestic fallout of Trump’s decision.
Impact on sectors that employ millions of people- like gems and jewellery and textiles- is likely to be significant. The government will need to extend support through means like expanding production-linked subsidies to ensure that India’s domestic industry stays globally competitive and can leverage the new opportunities this has thrown up, according to the consultancy, Ernst &, Young
The tariffs are “fundamentally reshaping the global trading system”, says Agneshwar Sen, a trade policy expert at Ernst &, Young India. This will require a “fundamental revaluation of trading strategies” as new supply chains emerge, he adds.
India will also have to be mindful of other risk factors that emerge from this- such as” Chinese dumping”, says Mr Shah.
As it becomes more difficult for Chinese goods to enter the US, these will have to find other markets. And there are few others that are as large as India.
“The global South accounts for more than 20% of global consumption and is where the new middle class is being created. This is where China will attempt to sell,” according to Akash Prakash of Amansa Capital, an investment management company in Singapore.
For the moment there’s little clarity and no official word from the government on what its plans are.
India has already reduced tariffs on some goods including high-end motorbikes and bourbon whiskey. Unlike Canada, Mexico or the European Union, Modi’s government has adopted a conciliatory approach to Trump and these announcements are unlikely to trigger a retaliation, say experts.
Indian businesses will now most likely face a period of uncertainty which is unlikely to go away anytime soon.
” Clearly, the ( Trump ) administration wants even broader and deeper tariff cuts. The question is what, if anything, will satisfy the Trump administration”?, Milan Vaishnav, a senior fellow at Carnegie Endowment told the BBC.
It is a million dollar question, for which there are no immediate answers.
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