Responding to U.S. reciprocal tariffs

• President Trump’s new tariffs consist of a commodity-wise import tariff and an additional reciprocal country-wise common tariff for all goods.

• The tariffs are currently on hold and limited to 10% for 90 days, except for China.

• The calculation of the tariffs is based on the formula: U.S. discounted tariff rate = (-1) * (1/2) * exports from U.S. – imports to U.S.)/imports to U.S.

• Some commodities have been exempted from the additional discounted reciprocal tariff, including steel/aluminum articles, autos/auto parts, copper, pharmaceuticals, semiconductors, lumber articles, bullion and energy, and certain other minerals not available in the U.S.

• India’s response to the additional 26% tariff is moderate, with its total exports of goods and its exports to the U.S. as a percentage of GDP being moderate.

• The main Indian exports affected by the additional 26% tariff are electrical machinery, gems and jewellery, machinery and mechanical appliances, mineral fuels, and articles of iron and steel.

• India’s competitors in these commodity groups have also been subjected to reciprocal tariffs which are higher than that of India.

• India’s approach must be multi-pronged, with an analysis of the major imports of India from the U.S. indicating that any levy of additional tariffs on them will make them more expensive.

• India should speed up consultations with the U.S. trade authorities to work out a comprehensive trade arrangement taking into account the concerns of both countries.

• The World Trade Organization should take the lead in creating a world trading system marked by low tariffs. Regional groupings are only a’second best’ solution.