Given U.S. moves, should India lower tariffs?

• US President Donald Trump’s reluctance to impose reciprocal tariffs on many countries, including India, has caused global economic uncertainty.
• Indian policymakers have reduced tariffs on several U.S. goods to placate Trump and are in talks with U.S. trade negotiators about a possible bilateral trade agreement.
• Ajay Shah and Laveesh Bhandari discuss the issue, arguing that generally, lower tariffs are beneficial and should be kept low.
• Shah adds that the extent of economic distortions and damage to efficiency caused by tariffs is related to the heterogeneity of tariffs.
• Bhandari also points out that China’s overproduction is a systemically important country that calls for certain measures.
• Shah suggests that India should focus on producing what it is good at and buying the rest from the world.
• LB argues that Trump’s negotiation of different rules for different countries could harm U.S. industry.
• The consensus opinion among economists is that tariffs should focus on helping consumers rather than producers.
• The question remains whether Trump’s reciprocal tariffs are a bargaining tool or a way of encouraging domestic American manufacturing.

Reciprocal Tariffs and Global Trade

• Traditional approach to negotiating lower tariffs through bodies like the WTO has become dysfunctional.
• Trump’s approach to reducing tariffs and non-tariff barriers is seen as more effective than this.
• China is criticized for causing problems in the global trade system due to its domestic subsidies and distortions.
• The WTO gives a veto to every single country, making it difficult to block any idea.
• India is criticized for interfering with every imaginable thing.
• Trump’s approach is not effective as he targets all countries, not just China.
• Non-tariff trade barriers are more endemic than studies show. They exist in different ways in almost every sector and are imposed on imports from almost every trade partner.
• Non-tariff trade barriers are a significant issue and the U.S. will judge the significance of these barriers.
• Reducing tariffs across the board is suggested, but it should not be instantaneous. It’s better to stagger tariff reductions and make it clear to the industry that these reductions are permanent.
• Trade liberalizations in India, such as those done years ahead of time, have been successful and triggered a great investment boom.
• A comprehensive Indo-U.S. free trade agreement could remove all trade barriers between India and the U.S. and complete trade liberalization with the EU, U.K., Japan.