Trump declares sweeping ‘reciprocal tariffs’, but his trade war may still allow India to hold some cards

Over an hour past midnight in India on Thursday (Wednesday US time), Donald Trump announced what he called “reciprocal tariffs” on the entire world. It was classic Trump, posing as the caped American superhero who will save his country from impending doom by taking on single-handedly a clutch of countries out to ‘get the US’, claiming that America has been “looted, pillaged, raped, plundered” by other nations. Trump called it ‘Liberation Day’.

None was spared from the orange crusader’s wrath with a baseline tariff rate of 10 percent for all imports into the US, but some countries received special mention, especially America’s major trading partners who run a trade surplus with the US.

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Trump called these countries, that includes India, the “worst offenders” and unleashed a long list during a dramatic White House event that was closer to a reality TV show than what it really was – a complete overhauling of the global trading system through a ‘shock and awe’ tariff policy.

Chinese imports were slapped with 34 per cent duties to counter Beijing’s tariff rate of 67 percent (according to Trump administration’s measurements), the European Union 20 percent in exchange for “39 percent”, Viet Nam a staggering 46 percent for 90 percent, and India 26 percent for Trump’s claimed figure of 52 percent.

Trump claimed that these duties were “discounted and reciprocal” in a touch of faux magnanimity, but the calculation  behind the figures that Trump team arrived at was not clear. The tariff figures that Trump claimed other countries were ‘charging the US’ appeared greatly inflated and just plain wrong.

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James Surowiecki, Yale Review editor and contributing writer for The Atlantic, posted on X that the “fake tariffs” didn’t seem to be an addition of tariffs and non-tariff barriers (which would have made some sense), but “instead, for every country, they just took our trade deficit with that country and divided it by the country’s exports to us. So we have a $17.9 billion trade deficit with Indonesia. Its exports to us are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us. What extraordinary nonsense this is.”

Thursday’s tariffs cannot be seen in isolation. China, for instance, has been whacked with an effective total tariff rate of 54 percent when the previous 20 percent imposition is taken into consideration. American treaty allies such as Japan, too, were targeted with Tokyo asked to cough up 24 percent and South Korea, 25 percent.

Reuters quoted a White House official, as saying that the higher penalties will take effect on April 9 and will apply to about 60 countries in all. The baseline 10% tariff will take effect on Saturday.

Regardless of the justification put forward by the Trump administration, one thing is clear. What we watched in real time was America’s abdication of its role as the chief supervisor of open markets and the clinical dismantling of a system that was put in place post the second World War, one that had delivered in spades for the United States and its allies in the West.

Trump and his base, however, feel that that system has now become outdated and prone to exploitation by other countries that are taking advantage of American magnanimity and decimating its industrial base. Trump wants to revert to the past century through a time machine, revamp the global economic model and rebuild American manufacturing to usher in an era of ‘lost prosperity’.

It is not clear whether the US president or his administration understands the first and second-order effects of these disruptive steps. The American stock market  took a tumble with nervous investors wiping off billions of dollars in market value in a matter of minutes. S&P 500 futures plunged 3.5 percent. Nasdaq 100 futures sold off by more than 4.3 percent, and Dow Futures slid about 1,000 points or 2.3 percent, reports NBC.

Trump’s sweeping tariffs, that violates the core WTO rules, may prove counterproductive for even American consumers. For instance, the 26 percent duty levied on US imports from India will hit the generic drugmakers and raise drug prices for American patients. However, the fact that China, Viet Nam or Bangladesh have been slapped with tariff rates higher than India may provide a glimmer of opportunity for New Delhi in getting a slice of the manufacturing pie.

This is too early to measure the sectoral impact on Indian exports, and we can only speculate on the era of uncertainty being ushered in by the disruptor-in-chief. While you chew on that prospect, do remember that with Trump noting is certain. Not even the slapping of tariffs that may well get a revision sooner than it takes to bat an eyelid.