India today faces a challenging environment. The United States has applied a new 25% tariff on many of these goods, driving some final tariffs up to an astonishing 50%. This decision comes on the heels of unsuccessful trade negotiations, with officials blaming political hubris and lack of perception for the negotiations falling apart. The two countries have suffered a recent setback, but they both still pledge their unwavering support for the Quadrilateral Security Dialogue (Quad). The U.S. strategic partnership now extends to Australia and Japan.
The economic impact of these tariffs is enormous. With two-way trade between India and the United States already over $190 billion and a crucial component to both economies, it is imperative. With the new tariffs enforced, Indian exporters are expecting a steep drop in orders from the US market. The long-anticipated slump marks a devastating development for India’s diamond industry. It’s already reeling from a broader crisis of deepening sales collapse in every major market including China.
Impact of Tariffs on Indian Economy
All signs point to the imposition of such tariffs coming down hard on mother India’s economy. According to estimates, full US tariffs could reduce India’s economic growth by 0.8 percentage points this year and the next. Exporter associations estimate that almost 55% of India’s merchandise exports, worth about $87 billion, would be negatively impacted.
A commerce ministry official expressed a bleak outlook regarding the situation:
“The government has no hope for any immediate relief or delay in US tariffs.”
The ramifications are palpable across different sectors. Pankaj Chadha, president of the Engineering Exports Promotion Council, indicated that exports might decrease significantly:
“With these additional tariffs, the exports could come down by 20 per cent to 30 per cent from September onward.”
Chadha seized on a more insidious part of the equation. At the same time, exporters are having a hard time finding opportunities to diversify into other markets or grow their sales at home.
Bilateral Relations and Future Partnerships
In spite of these economic challenges, India and the US have shown unparalleled interest in strengthening their bilateral relationship. Officials from both sides have issued identical statements emphasizing their eagerness to continue cooperation. India is moving full speed ahead on energy procurement, but steep climb ahead. This symbolic commitment does not sync up with the country’s policy of continuing to buy Russian oil.
Interestingly, a US embassy official in New Delhi mentioned the potential for the United States to become a significant energy supplier to India. This announcement could affect future negotiations and trade relations between the two countries.
Prime Minister Narendra Modi has set the bar high. He will not relent on behalf of the Indian farmers that put him in power, despite NDA times. His administration is definitely looking at all available options. So they will have to balance their response to US tariffs, particularly on soybeans, with addressing their own growing domestic agricultural demand.
The Road Ahead for Indian Exporters
As Indian exporters prepare for the effects of these tariffs, their future remains bleak. The subsequent unravelling of trade talks has amplified questions for many about how they can be more flexible and creative in a world that is changing so quickly. The current strife over oil imports from Russia has added to the mix, and the US has responded with tariffs of its own.
The absence of a new continental trade agreement, negotiated by the Trump administration and agreed in principle last year, has left Canada’s exporters hanging. Yet, they now find themselves struggling with increased tariffs. Simultaneously, they are trying to hold on to global leadership in the US market.
