New Import Taxes on Indian Goods Come Into Effect: Who Gets Hit and What Gets a Pass?
Recently, a hefty 50 percent tariff imposed by the U.S. on goods from India has come into play. This new tax regulation could disrupt billion-dollar trade transactions and jeopardize thousands of jobs in India, the globe's most populous country.
Initially, the U.S. imposed a 25 percent tariff on Indian products. A week later, another 25 percent was added, bringing the total to a whopping 50 percent. This was done in response to India's decision to purchase oil from Russia. The 50 percent tariff, one of the highest the U.S. has ever implemented, will affect a wide array of goods. It ranges from gems, jewelry, clothes, shoes, furniture, to industrial chemicals.
This new tax policy could put India in a tough spot in terms of export competitiveness against China. It could also hamper the economic plans of India’s Prime Minister, Narendra Modi, who aims to turn India into a significant manufacturing hub. Until recently, the U.S. was India’s biggest trade partner with an annual bilateral trade value of $212 billion.
Industries Bearing the Brunt
According to a think tank based in New Delhi, Indian exports to the U.S. might drop from $86.5 billion this year to around $50 billion in the next five years due to this new tariff. Industries expected to suffer the most include textiles, gems, jewelry, shrimp, and carpets, with these sectors bracing for a 70 percent plunge in exports. This could potentially put hundreds of thousands of jobs at risk.
While the U.S. might not see India as a significant trading partner, the situation is quite the opposite for India. For them, the U.S. is their largest trading partner. Exports in areas such as textiles, garments, gems and jewelry, fisheries, leather items, and crafts are expected to suffer. These industries, which are highly labor-intensive and made up of small businesses, may not be able to withstand the blow.
Any Industries Spared?
The Indian pharmaceutical industry has been granted a reprieve from immediate tariff hikes due to the critical role of generic drugs in providing affordable healthcare in the U.S. Nearly half of the U.S.'s generic medication imports come from India. In a recent year, Indian pharmaceutical exports to the United States amounted to approximately $8.7 billion.
Moreover, sectors like semiconductors and consumer electronics will be governed by separate, sector-specific U.S. tariffs. Similarly, aluminium and steel products, along with passenger vehicles, will also be subject to separate tariffs from the blanket 50 percent rate.
What's India's Response?
Prime Minister Modi has promised to shield farmers, reduce taxes, and promote self-reliance in response to the tariff hikes. He urges India to become self-reliant, not out of desperation, but out of pride. He expresses that it's time for India to stand up amidst the rising economic selfishness worldwide.
Additionally, there are plans to lower and simplify the goods and services tax. Also, an increase in the salaries of nearly five million state employees and 6.8 million pensioners is expected to take effect next year. These measures could assist India's economy in maintaining some growth momentum.
Indian exporters affected by tariffs will receive financial assistance and other incentives to diversify into markets like Latin America and the Middle East. However, there is no concrete policy yet on how to provide these subsidies. It remains unclear whether it will be funded by taxpayers or major companies that benefited from the Russian oil exports. Regardless of how subsidies are provided, it may not be enough to cushion such a massive blow.
Why Did the U.S. Impose the Tariffs?
Talks to defuse a trade war broke down after five rounds of negotiations, following the U.S.'s demand for India to halt its imports of Russian oil and gas. Despite the ongoing threat of higher U.S. tariffs, India has continued to buy Russian crude this year, albeit at lower levels.
India's decision to continue buying Russian oil, despite the geopolitical rivalry between Russia and the West, has drawn criticism. High-ranking U.S. officials have accused India of funding Russia's war against Ukraine. They highlighted that India's Russian oil imports skyrocketed from 1 percent prior to the Ukraine war to 37 percent. India was accused of "profiteering".
However, India's foreign ministry emphasized that Russian oil imports are driven by market forces and the energy needs of the country's 1.4 billion population. They also accused the U.S. of selectively targeting India for purchasing Russian oil, when both the European Union and China, with whom the U.S. has trade deals, continue to import energy from Russia.
In light of these events, India is considering joining multilateral trade pacts and strengthening its traditional ties with other nations like Russia. As the trust between India and the U.S. reaches an all-time low, India is expected to rebalance towards Russia, China, and BRICS countries.