Trump on Reciprocal Tariff talks with PM Modi

Learn how reciprocal tariffs impact global trade, economies, and international relations. Explore key takeaways from the talks between PM Modi and Trump and the impact on U.S.-India trade relations.

Context: Recently US President Donald Trump has announced his plan to impose “reciprocal tariffs” on all countries.

What are Reciprocal Tariffs?

A reciprocal tariff is a tax or trade restriction imposed by one country in response to similar actions taken by another.
The goal is to create a balance in trade between nations by ensuring fairness in tariff rates.
While intended to protect local industries, reciprocal tariffs can lead to trade wars and economic disruptions.

Historical Context

Since World War II, global trade has moved towards freer trade agreements.
Agreements like GATT (General Agreement on Tariffs and Trade) and WTO (World Trade Organization) ensured that developing countries received preferential treatment.
Under this system, developing nations could levy higher tariffs to protect their industries, while developed nations maintained lower tariffs.

Trump’s Approach

Ends the preferential treatment for developing nations.
The US will now match tariff levels of other countries on American exports.
Trump calls it a “fair” system where the US no longer has to worry about uneven tariffs.

Impact on Indian Exports

The United States stands as India’s largest export market, accounting for approximately 17.7% of India’s total exports in the fiscal year 2024.
Key export sectors include pharmaceuticals, petrochemicals, textiles and machinery.
The imposition of reciprocal tariffs could render Indian goods less competitive in the U.S. market due to increased prices, potentially leading to a decline in export volumes.