United States President Donald Trump initiated a global trade war on Tuesday with the imposition of a steep tariff of 25 per cent on imports from Mexico and Canada while doubling tariffs on Chinese goods to 20 per cent, which led to retaliatory tariff announcements by Canada and China on American products.

With Trump walking the talk on his tariff threats, Indian exporters are a worried lot. The US is set to hit all countries with levies of 25 per cent on steel and aluminium imports from March 12, and tariffs on agricultural products and automobiles are to be announced on April 2. Trump, who has been strongly critical of India’s “very high tariffs”, has also threatened the country and some others, including Brazil and the EU, with reciprocal tariffs in April, and exporters are left guessing what all it could encompass.

Reciprocal tariffs

“We thought he (Trump) would not actually hit countries with steep tariffs, and it was a negotiating posture. But he has gone ahead and done that. So he could do it for us, too.  It is time to prepare ourselves for reciprocal tariffs with a plan of action. It seems Trump is going to walk the talk,” said Pankaj Chadha, Chairman, Engineering Export Promotion Council (EEPC) India.

Engineering goods exports worth at least $5 billion are likely to take a hit once the 25 per cent tariffs on steel and aluminium are implemented by the US, per EEPC India. The amount could be more if the coverage is expanded.

The government, too, seems to be unsure about what the US has in store. Steel and heavy industries Minister H D Kumaraswamy on Tuesday told reporters that India will “wait and watch” as there was no clarity on what was going to be the extent of tariffs imposed by the US, and a trade strategy would be devised once the specifics were known.

Trade talks

Commerce & Industry Minister Piyush Goyal is in Washington DC, this week to take ahead plans for a bilateral trade agreement that Trump and Prime Minister Narendra Modi agreed to work on last month for a “more balanced and fair trade relationship” that could increase bilateral trade to $500 billion by 2030. Goyal has left for the US, armed with lists of items that could be hit by the duties on steel and aluminium and also items that the US exports to India.

India’s trade surplus with the US was at around $35 billion in FY 24 as it exported goods worth $77.5 billion to its top export destination and its imports were at $42.19 billion.

“The Minister will try to see how the trade agreement could be a way to take care of US concerns around its trade deficit so that it could be persuaded to withdraw its tariff threats directed at India,” an industry source said.

This may not be an easy thing to do as Trump has his angst against countries with trade surpluses, pointed out Biswajit Dhar, Distinguished Professor, Council for Social Development (CSD).

“It is to be seen how he is going to get at us. He also wants agricultural tariffs to be lowered, and one doesn’t know how much pressure he will put on us,” Dhar said.

Opportunities ahead

There is also some optimism in certain sectors around the tariffs on Mexico and China. “Once fully implemented, these tariffs could erode Mexico’s cost advantage, creating new opportunities for Indian auto components in the global market,” points out a recent report by Boston Consulting Group and ACMA.

However, there were many challenges to be overcome by the Indian industry for this to happen, including inadequate capacities and competition from South East Asian countries, said Dhar.

The tariffs imposed by the US on Canada and Mexico despite the US-Canada-Mexico free trade agreement (FTA) highlight Trump’s disregard for negotiated trade agreements, said Ajay Srivastava from Global Trade Research Initiative. To avoid a similar situation, India should avoid a comprehensive FTA with the US, he said.

“In an FTA, the US may also demand additional concessions such as opening government procurement, reducing agricultural subsidies, weakening patent protections, and allowing unrestricted data flows—demands India has resisted for decades,” he said.

Instead of an FTA, India may offer a zero-for-zero tariff deal to the US by proposing to eliminate tariffs on most industrial products from the US, provided the US does the same for Indian goods, he suggested.

With inputs from S. Ronendra Singh