Where tariffs trump economics

• The US President’s recent tariffs have led to a decline in key commodities, crude oil, volatility, and a downturn in stock markets.

• The drop is attributed to fears of a slowdown in global trade, potentially reducing oil demand.

• The announcement has sparked new concerns about a global trade war, potentially leading to higher inflation, slower economic growth, and escalating disputes.

• The announcement has created an extended period of uncertainty, posing new challenges to economic policy making.

Role of Reciprocal Tariffs

• Reciprocal tariffs are taxes imposed by one country on another in response to similar actions taken by that country.

• They aim to protect local businesses, preserve jobs, and fix trade imbalances.

• Despite their benefits, they can lead to higher prices for consumers, disrupt supply chains, and slow down growth.

Targeting Asia

• South Asia and Southeast Asia have been hit hard by the tariffs, with exports to the U.S. contributing around 30% of Vietnam’s GDP and 25% of Cambodia’s.

• The tariff calculation formula is based on an elasticity rate lower than it should be in practice, affecting countries with substantial trade barriers or wide-open markets.

Prospects for India

• The proposed tariffs are expected to significantly impact India’s merchandise exports to the U.S.

• India needs to secure a balanced trade deal with the U.S., fast-track trade agreements with the European Union, the U.K., and Canada, deepen ties with Russia, Japan, South Korea, ASEAN, and the UAE, and handle ties with China with strategic intent.

• Some believe India could convert the situation into an opportunity, driven by the success of Apple’s iPhone exports from India.