India and US Tariff Issue

How floundering India-US talks led to high tariffs?

FEBRUARY

Indian Prime Minister Narendra Modi agrees to work toward a limited trade deal by fall 2025 with the United States and expand the bilateral trade deal to $500 billion by 2030.
He also pledged to boost energy purchases from the U.S.

MARCH

Trade Minister Piyush Goyal visits Washington to meet Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamisen Greer.
Later in March, U.S. officials visit Delhi for talks. India says negotiations are progressing well.

APRIL

During Vice President JD Vance’s visit, both sides finalise the terms of reference for bilateral talks.

MAY

Minister of Commerce and Industry Piyush Goyal travels to Washington with lead negotiator Rajesh Agrawal for trade talks.
India expects a favourable outcome is near.

JUNE

S. Commerce Secretary Howard Lutnick on June 3 says the U.S. and India are making progress and a deal could be finalised soon.
Trump says a “big” trade deal with India is coming soon. Indian officials told that trade talks have hit a roadblock over disagreements on import duties largely over farm goods, dashing hopes of a deal ahead of July 9.
At a rally in the eastern Indian state of Odisha on June 20, Modi says he declined Trump’s invitation to Washington.

JULY

Delegation returns to New Delhi without a breakthrough.
Trade Minister Piyush Goyal says on July 4 that India will not do trade deals to meet deadlines and national interest will be “supreme.”
Indian trade delegation travels to Washington again in mid-July for the fifth round of talks, aiming to break the deadlock.
On July 31, Trump announces to impose 25% tariffs on Indian imports, warns of further 25% additional tariffs for buying Russian oil.

AUGUST

On August 7, 25% tariffs on Indian goods come into effect.
Prime minister Modi says India will not compromise farmers’ interest despite “a heavy price”.
New Delhi calls tariffs over Russian oil purchases “unfair”, and vows to defend national interests.
Prime minister Modi’s first China visit in seven years is announced. U.S. trade delegation trip to New Delhi scheduled for August 25-29 is cancelled.
White House adviser Peter Navarro says India’s oil buys funds Moscow’s war in Ukraine.
Additional 25% tariff on Indian goods comes into effect on August 27, lifting duties to 50%, among the highest for U.S. trade partners.

What reason has Trump given for tariffs?

Talks to defuse a trade war broke down after five rounds of negotiations, following Trump’s calls for India to halt its imports of Russian oil and gas.

Despite the persistent threat of higher US tariffs, India has continued to buy Russian crude this year – albeit at falling levels.

New Delhi has also been hit because of the geopolitical rivalry between Russia and the West. Top Trump officials, including US Treasury Secretary Scott Bessent, have accused India of funding Russia’s war against Ukraine. He pointed out that India’s Russian oil imports went from 1 percent before the Ukraine war to 37 percent. He accused India of “profiteering”.

India’s foreign ministry said that New Delhi would “take all necessary steps to protect its national interests” and pointed out that Russian oil imports were driven by market forces and the energy needs of the country’s 1.4 billion people.

New Delhi has also accused Washington of selectively targeting India for purchasing Russian oil, when both the European Union and China – with whom Trump has brokered trade deals – continue to import energy from Russia.

Trump, who has unleashed a tariff war that has shaken the global economy, has been highlighting the high tariffs imposed by India. “India has been, to us, just about the highest-tariffed nation anywhere in the world. It’s very hard to sell to India because they have trade barriers and very strong tariffs,” Trump said during Prime Minister Modi’s visit to the US in February.

New Delhi pledged to remove levies on certain industrial goods from the US and to increase defence and fuel purchases to assuage Trump’s grievances over trade imbalances. But it refused to open its vast farming and dairy sector to cheap US imports.

For context, the simple average tariff rate that India imposed on agricultural imports was 39 percent at the end of 2024. By contrast, the simple average tariff rate that the US charged on its agricultural imports was 4 percent. Trump took umbrage with that.

Last year, bilateral trade between India and the US stood at approximately $212bn, with a trade gap of about $46bn in India’s favour.

Trump’s tough stance has pushed India to mend ties with rival China – the world’s second-largest economy and one of New Delhi’s biggest trading partners with a bilateral trade of around $136bn.

India is also preparing to roll out the red carpet to Russian President Vladimir Putin as New Delhi moves to strengthen its traditional ties with Moscow.

“Most strategic experts in India have already said that the trust between India and the US is at an all-time low. So there is an assessment that India will rebalance towards Russia, towards China and towards BRICS”.

Which sectors in India will be most affected by the imposition of 50 percent tariff on Indian goods?

The most heavily affected Indian sectors by the new 50% U.S. tariffs are labor-intensive industries like textiles and apparel, gems and jewelry, and seafood, which have a high dependence on the American market.

Severely impacted sectors

Textiles and Apparel: The U.S. is one of the largest buyers of Indian textiles, but with tariffs now as high as 63.9% on knitted apparel, exporters are facing a major loss of competitiveness. Major apparel clusters in Tiruppur, Noida, Gurugram, and Bengaluru are facing significant pressure, with some units already downsizing or freezing capacity expansions.

Gems and Jewelry: Exports of cut and polished diamonds and studded jewelry are facing duties exceeding 50%. Given that the U.S. accounts for 40% of India’s global exports in this sector, industry hubs in Surat and Mumbai are expecting a significant fall in demand and potential job losses.

Shrimp and Seafood: Total tariffs on Indian shrimp exports to the U.S. have risen to 60%, making them much more expensive than those from competitors like Ecuador. The marine sector is vulnerable, with exports tumbling, and coastal processing hubs being hit hard.

Handicrafts and Carpets: These traditional, labor-intensive industries are also facing a major hit, with duties climbing to over 50%. Exporters of these goods, which have a strong market in the U.S., are likely to struggle to compete with alternative suppliers.

Leather and Footwear: Exports of leather goods and footwear to the U.S. are now subject to a 50% tariff, putting them at a disadvantage against rivals such as Vietnam, China, and Mexico.

Furniture: With the U.S. market a major destination for Indian furniture, the imposition of the 50% tariff is expected to significantly affect manufacturers and exporters.

Moderately affected sectors

Auto Components: While the overall impact on the Indian auto components sector may be moderate, some exports face a 50% duty. Small and medium-sized businesses supplying parts for gearboxes and transmission equipment are particularly vulnerable.

Organic Chemicals: Exports of organic chemicals to the U.S. are facing tariffs of over 50%. However, the U.S. accounts for a relatively smaller share of India’s overall chemical exports, which may limit the impact.

Metals: While some iron, steel, and aluminum products are subject to the 50% tariff, the effect on India is contained because the U.S. is not the largest market for these exports.

Exempted or less affected sectors

Pharmaceuticals: Crucially, the U.S. has exempted generic drug imports from the additional tariffs, recognizing the importance of affordable medication. However, a separate 100% tariff on branded and patented drugs, effective October 1, 2025, could still create uncertainty.

Electronics and Semiconductors: These sectors are also largely exempt from the new 50% tariffs. This has provided some protection for major players assembling products for the U.S. market. However, a recent and unexplained drop in tariff-free exports, including smartphones, is causing concern.

Energy and Minerals: Exports of energy resources and critical minerals are exempt from the tariff hikes.

How could US tariffs affect the Indian economy?

The 50% U.S. tariffs are expected to significantly impact India’s export-dependent sectors, particularly labor-intensive industries like textiles, gems, and seafood. The effects will ripple through the broader economy, potentially slowing GDP growth, weakening the rupee, and putting a strain on micro, small, and medium-sized enterprises (MSMEs).

Impact on key export sectors

The most immediate and severe impact will be on industries that rely heavily on the American market, which is India’s largest trading partner.

Textiles and apparel: The U.S. is a critical market for Indian textiles and garments. The steep tariffs threaten the competitiveness of Indian exports against rivals like Bangladesh and Vietnam, which have lower duties. The Apparel Export Promotion Council has warned that the hike “has effectively driven the Indian apparel industry out of the US market” and could lead to major job losses.

Gems and jewelry: With the U.S. being India’s single largest market for gems and jewelry, the sector is facing a severe blow. Industry organizations have warned that the 50% tariff makes it “impossible” for exporters to survive and could endanger millions of jobs.

Seafood: The tariffs have made Indian shrimp exports unviable compared to competitors like Ecuador and Indonesia, which face lower duties. This is projected to cause a significant drop in shrimp export volumes and revenue, affecting millions of livelihoods.

MSMEs: Small and medium-sized businesses, which dominate the textile, leather, and gems and jewelry sectors, are especially vulnerable. They have smaller margins and fewer resources than larger firms to absorb the increased costs and navigate market shifts.

Agricultural products: Exports of commodities like rice, honey, and some spices, which previously enjoyed low tariffs, will also be hit, risking a loss of market share to rivals.

Broader economic consequences

Beyond specific sectors, the tariffs could have wider effects on the Indian economy.

Slower GDP growth: Economists have projected that the tariffs could reduce India’s GDP growth by 0.5% to 0.6% this year. While exports to the U.S. account for a modest portion of India’s overall GDP, the blow to specific, high-employment sectors could have a concentrated effect.

Weakened rupee: The tariffs, along with other factors like a visa fee hike, have put pressure on the Indian rupee, which recently fell to a historic low against the dollar. A weaker currency can increase the cost of imports and fuel inflation.

Investor uncertainty: The trade friction is causing volatility and uncertainty in financial markets. Foreign portfolio investors have shown sustained outflows from the Indian market amid the indecisive trade talks.

Inflationary pressure: The tariffs could lead to higher import costs, especially for raw materials and inputs used by Indian manufacturers. This could contribute to domestic inflation.

What is / can be India’s mitigation strategy on the US tariff issue?

India is employing a multi-faceted mitigation strategy to address the impact of the 50% U.S. tariffs and manage broader trade challenges.

Diplomatic Engagement and Trade Negotiations:

India is actively negotiating a trade deal with the U.S. to seek a resolution on the tariffs. Commerce Minister Piyush Goyal and External Affairs Minister S Jaishankar have held high-level discussions with their U.S. counterparts.
Chief Economic Adviser V Anantha Nageswaran mentioned that the additional 25% U.S. tariffs were expected to end by November 30.
There’s also a focus on resolving the contentious issue of India’s Russian oil purchases, which is seen as a major hurdle in negotiations.

Export Diversification:

India is diversifying its export markets and products to reduce reliance on the U.S..
The government is focusing on strengthening trade ties with 50 countries, including in the Middle East and Africa, which together account for 90% of India’s exports.
This strategy includes fast-tracking Free Trade Agreements (FTAs) with partners like the UK, EU, and Oman. India has signed 13 FTAs in the last five years and has signed a comprehensive trade agreement with the UK.
India is also negotiating FTAs with New Zealand and the European Union, with the EU agreement expected to conclude by the end of 2025.
India recently signed a Trade and Economic Partnership Agreement (TEPA) with the European Free Trade Association (EFTA).
There is also renewed interest in strengthening ties with BRICS partners like Brazil and Russia, and exploring deeper trade links with China.

Enhancing Export Competitiveness and Ease of Doing Business:

The government is launching a four-pronged strategy to boost exports, focusing on improving competitiveness, promoting exports, and diversifying markets (both export and import).
The Export Promotion Mission (EPM), worth ₹25,000 crore, announced in the Union Budget 2025-26, is being prepared to provide affordable credit, improve market access, and cushion exporters from the tariff impact. This includes:
⇒ Increasing collateral-free loan limits under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to ₹20 lakh for exporters.
⇒ ₹5,000 crore allocated for interest equalisation support, subsidizing interest rates on pre- and post-shipment credit.
⇒ Reforms to the GST structure, reducing the number of tax slabs and streamlining ITC refunds to ease cash flow for exporters.

The “Districts as Export Hubs” initiative identifies products with export potential in each district and provides support to local exporters.
Initiatives to improve logistics, supply chain efficiency, and value addition are also being implemented.
Establishment of 65 Export Facilitation Centres (EFCs) across the country to mentor exporters, especially MSMEs.

Focus on Domestic Demand:

Steps are being taken to stimulate domestic demand, potentially through measures like GST rate cuts, to provide some support to manufacturing units affected by tariffs.
The government has updated the GST structure with just two tax slabs: 5% and 18%, effective September 22, to streamline taxation and reduce costs on most goods.

Boosting Manufacturing and Strategic Autonomy:

The Atmanirbhar Bharat (Self-Reliant India) initiative and Production Linked Incentive (PLI) schemes aim to boost local manufacturing and reduce import dependency.
India is emphasizing its strategic autonomy by prioritizing national interests, such as energy security through Russian oil imports, despite U.S. pressure.

How India may use multilateral institutions to challenge US tariffs?

India’s strategy for using multilateral institutions to challenge U.S. tariffs involves a mix of legal challenges, strategic alliances, and advocacy for systemic reforms. While bilateral talks are the primary focus, multilateral action can increase pressure on the U.S. and secure broader support for India’s position.

World Trade Organization (WTO)
The WTO is the primary forum for resolving trade disputes, and India has already initiated proceedings concerning the recent U.S. tariffs.
Filing legal complaints: India has filed formal complaints at the WTO, asserting that the U.S. tariffs are, in essence, safeguard measures that undermine WTO rules.

Highlighting U.S. procedural violations: India contends the U.S. has not followed proper notification and consultation requirements under the WTO Agreement on Safeguards.

Revising retaliatory duties: In July 2025, India notified the WTO of its intent to suspend concessions on U.S. goods equivalent to the economic impact of the 50% tariffs. This revised retaliatory package increased the value of suspended trade concessions to $3.82 billion, nearly double the previous estimate.

Addressing the “national security” loophole: The U.S. has justified its tariffs by invoking the “national security” clause under Section 232 of its Trade Expansion Act. India is challenging this justification within the WTO framework to prevent the clause from being used to bypass trade rules.

Pushing for WTO reforms: As a long-time advocate for a more equitable global trading system, India can use the tariffs as an example to push for restoring the WTO’s defunct Appellate Body and reforming trade rules.

BRICS and Global South alliances

India can rally diplomatic and political support from like-minded countries, particularly within the expanded BRICS bloc, to challenge the tariffs collectively.

Using BRICS as a platform: BRICS member countries have already condemned the U.S. unilateral tariffs as “illegal and destabilising” at a July 2025 meeting. India, along with other BRICS members like Brazil, can use this forum to build a united front against protectionist measures.

Championing the Global South: As a leader of the Global South, India can amplify the concerns of developing nations facing similar pressures from powerful economies. This can create collective pressure and build a more robust, multipolar world order less dependent on Western-dominated institutions.

Promoting de-dollarisation: The tariffs have pushed BRICS nations to accelerate de-dollarization efforts, including using alternative payment systems and local currencies for trade settlements.

G20 Forum

As a major economy and a past G20 host, India can use the G20 platform to raise the issue of unfair trade practices and push for rule-based trade.

Advocating for rule-based trade: At G20 meetings, India can highlight how unilateral tariff impositions undermine the principles of free and fair trade that the group is meant to uphold.

Building consensus: India can work with other G20 members to push for consensus statements that call for de-escalation of trade tensions and greater adherence to multilateral trading rules.

International Economic Forums

India is involved in other economic forums and mini-lateral groupings that provide additional platforms for raising concerns and building alliances.

Indo-Pacific Economic Framework for Prosperity (IPEF): India can use its participation in IPEF to engage with other member countries and raise concerns about U.S. trade volatility.

India-Middle East-Europe Economic Corridor (IMEC) and I2U2: Groups like IMEC and I2U2, which include the U.S., provide additional diplomatic channels for India to discuss trade concerns and leverage its strategic partnerships.

What is a Tariff?

A tariff, also known as customs duty, is a tax levied on a country’s imported goods at the border. The terms ‘tariffs’, ‘custom’ and ‘duty’ can be used interchangeably. It is levied on the domestic importers of a country.

Explanation: Tariffs are used to restrict imports. Simply put, they increase the price of goods and services purchased from another country, making them less attractive to domestic consumers.

A key point to understand is that a tariff affects the exporting country because consumers in the country that imposed the tariff might shy away from imports due to the price increase. However, if the consumer still chooses the imported product, then the tariff has essentially raised the cost of the imported product for the consumer.

Tariffs have the purpose of making comparatively cheaper domestic products more attractive to consumers at affordable rates.

It is controversial whether a free market policy would improve the economy more than trade barriers. Many economists agree that tariffs harm the market more than doing any good. They can make the domestic market less productive and innovative by reducing the competition, as the experts would say. Many such scenarios might reflect light on how tariffs are not always beneficial for both the producers and consumers.

What are the Different Types of Tariffs?

There are four principal types of tariffs applicable – specific tariffs, compound tariffs, ad valorem (according to the value), and tariff-rate quota. Here is a brief description of these types:

Specific tariffs: A specific tariff is levied on a product irrespective of its value. It depends on the number of units or weight of the imported product rather than its value. For example, a country can levy Rs. 15 on a pair of shoes but Rs. 100 on a single jacket.

Compound tariffs: A compound tariff depends on the imported product’s unit and value. For example, if the tariff imposed on imported apples is Rs. 5 per unit, a compound tariff will include this and an additional percentage on the value of the goods.

Ad valorem: “ad valorem” is a Latin word that means “according to value”. Hence, it is quite understandable that this type of tariff is applicable based on the import value of the product. This is calculated in the form of a percentage rather than a monetary figure. For example, Japan levies a 15% tariff on US automobiles.

Tariff-rate quota: A tariff-rate quota combines two trade policies – tariffs and quotas. It levies a specific tariff rate on imported goods up to a specific amount. For example, a country can levy a 10% tariff on 5000 bags but when the number exceeds 5000, the tariff rate will be increased to 20%.

Why Governments Impose Tariffs?

Governments may impose tariffs for several reasons:

To raise revenues
To protect domestic industries
To protect domestic consumers
To protect national interests

Explanation regarding the USA:

Raising Revenue: Tariffs can be used to raise revenues for governments. This kind of tariff is called a revenue tariff and is not designed to restrict imports. For instance, in 2018 and 2019, President Donald Trump and his administration imposed tariffs on many items to rebalance the trade deficit.

In the fiscal year 2018, customs duties received were $41.6 billion. In fiscal year 2019, duties received were $71.9 billion.

Protecting Domestic Industries: Governments can use tariffs to benefit particular industries, often doing so to protect companies and jobs. For example, in April 2018, President Donald Trump imposed a 25% ad valorem tariff on steel articles from all countries except Canada and Mexico.

In March 2022, President Joe Biden replaced the tariff on steel products from the United Kingdom with a tariff-rate quota of 500,000 metric tons, and reached quota deals with several other countries.

This proclamation reopened the trade of specific items with the U.K. while taking measures to protect domestic U.S. steel manufacturing and production jobs.

Protecting Domestic Consumers: By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive. Some products made in countries with fewer regulations can harm consumers, such as a product coated in lead-based paint. Tariffs can make these products so expensive that consumers won’t buy them.

Effective Feb. 1, 2025, President Donald Trump placed 25% tariffs on imports from Canada and Mexico and 10% tariffs on imports from China.

The rationale behind these tariffs was to force these countries to cooperate with the U.S. to stem the flow of illegal immigrants and drugs like fentanyl from entering the U.S., as well as to boost domestic manufacturing and raise revenues.

Protecting National Interests: Tariffs can also be used as an extension of foreign policy as their imposition on a trading partner’s main exports may be used to exert economic leverage. For example, when Russia invaded Ukraine, much of the world protested by boycotting Russian goods or imposing sanctions.

In April 2022, President Joe Biden suspended normal trade with Russia. In June, he raised the tariff on Russian imports not prohibited by the April suspension to 35%.

What are the major advantages and disadvantages of Tariffs?

Advantages:

Produce revenues: As discussed, tariffs provide a government a chance to bring in more money. This can relieve some of the tax burdens felt by a county’s citizens and help the government to reduce deficits.

Open negotiations: Tariffs can be used by countries to open negotiations for trade or other issues. Each side can use tariffs to help them create economic policies and talk with trade partners.

Support a nation’s goals: One of the most popular uses for tariffs is to use them to ensure domestic products receive preference within a country to support businesses and the economy.

Make a market predictable: Tariffs can help stabilize a market and make prices predictable.

Disadvantages:

Create issues between governments: Many nations use tariffs to punish or discourage actions they disapprove of. Unfortunately, doing this can create tensions between two countries and lead to more problems.

Initiate trade wars: A typical response for a country with tariffs imposed on it is to respond similarly, creating a trade war in which neither country benefits from the other.

Unintended Side Effects of Tariffs

Tariffs can have unintended side effects:

They can make domestic industries less efficient and innovative by reducing competition.
They can hurt domestic consumers since a lack of competition tends to push up prices.
They can generate tensions by favoring specific industries or geographic regions over others. For example, tariffs designed to help manufacturers in cities may hurt consumers in rural areas who do not benefit from the policy and are likely to pay more for manufactured goods.
Finally, an attempt to pressure a rival country by using tariffs can devolve into an unproductive cycle of retaliation, commonly known as a trade war.

How is a quota different from a tariff?

Quota refers to a defined upper limit set by the government, on the number of goods or services imported or exported from/to other countries, in a particular period. It is a measure used in the regulation of trade volume between nations.

Quotas do not generate revenues for the government, but aims at encouraging the production of goods within the country; that helps the nation to become self-sufficient and decrease dependency on imports from other countries. In this way, quota helps in reducing imports and thus, protecting own industries from foreign competition.

Key Differences Between Tariff and Quota

The primary differences between tariff and quota are explained in the given below points:

The tariff is a tax charged on imported goods. The quota is a limit defined by the government on the quantity of goods produced in the foreign country and sold domestically.

Tariff results in generating revenue for the country and hence, increase the GDP. As opposed to quota, is imposed on the numerical value of goods, not the amount and so it has no effect.

With the effect of the tariff, consumer surplus goes down while the producer’s surplus goes up. On the other hand, quota results in the fall of consumer surplus.

Income generated from the collection of the tariff is the revenue of the government. Conversely, in the case of quota, traders will get extra income from the collection.

What is ‘Reciprocal Tariff’?

A reciprocal tariff is a tax or trade restriction that one country places on another in response to similar actions taken by that country. The idea behind reciprocal tariffs is to create balance in trade between nations. Recently, reciprocal tariff policies have sparked debates in global trade. For instance, the Trump administration imposed tariffs on imports from major trading partners like China, claiming unfair trade practices and a need to protect U.S. industries. In retaliation, these countries enacted their own tariffs, leading to rising trade tensions.

Explanation:

If one country raises tariffs on goods from another, the affected country might respond by imposing its own tariffs on imports from the first country. For instance, if Country A charges a 10% tariff on imports from Country B, then Country B might also charge a 10% tariff on imports from Country A. This response is meant to protect local businesses, preserve jobs, and fix trade imbalances.

Reciprocal tariffs can lead to a back-and-forth increase in trade barriers, potentially resulting in a trade war that negatively impacts both economies. Such situations can disrupt supply chains, raise prices for consumers, and slow down economic growth. It is important for countries to communicate openly and work together to settle trade issues instead of turning to reciprocal tariffs.

Economic Implications:

While reciprocal tariffs can help local industries in the short run, they might cause higher prices for consumers and fewer options in the market. They can also create tension between trading partners and disrupt global supply chains.

Key points regarding reciprocal tariffs include:

Balancing Trade Relationships: Reciprocal tariffs aim to promote fair trade practices by ensuring that countries do not face unfair advantages or disadvantages in terms of tariffs applied to their goods in different markets.

Negotiation Tool: Reciprocal tariffs can be used as a negotiating tool in trade disputes or to incentivize other countries to reduce or eliminate tariffs on the country’s exports.

Impacts on Domestic Industries: Reciprocal tariffs can provide protection to domestic industries by making imported goods less competitive in the local market.

International Relations: The imposition of reciprocal tariffs can strain diplomatic relations between countries, potentially leading to trade wars or retaliatory measures.

Effects on Consumers: Reciprocal tariffs can lead to increased prices for certain imported goods, which can impact consumers by reducing choices or leading to higher costs.

What are the latest instances of ‘Reciprocal Tariffs’?

Reciprocal tariffs occur when countries impose tariffs on each other’s goods in response to existing tariffs. This trade policy has become more common in recent years, especially during former President Donald Trump’s administration, which saw a series of tariff actions aimed at correcting trade imbalances and addressing unfair trade practices.

United States and China

A key example of reciprocal tariffs happened during the U.S.-China trade war that intensified in 2018. The U.S. placed tariffs on many Chinese products, claiming unfair trade practices and intellectual property theft. In response, China imposed tariffs on American goods, including agricultural items like soybeans and pork. This cycle of tariffs increased costs for consumers and businesses in both nations.

United States and European Union

Another important case involved the United States and the European Union (EU). In 2018, after the U.S. introduced tariffs on steel and aluminum, the EU retaliated with tariffs on American goods, targeting items such as bourbon whiskey, motorcycles, and agricultural products. This situation illustrated how reciprocal tariffs can create economic tensions between major trading partners.

Canada and United States

The Canada-U.S. relationship also saw reciprocal tariffs. After the U.S. imposed tariffs on Canadian steel and aluminum in 2018, Canada responded with tariffs on various U.S. products, including ketchup, whiskey, and other consumer goods. This example showed that even close allies can engage in reciprocal tariff actions when faced with unilateral trade measures.

India’s Tariffs on US Products

India has taken reciprocal tariff actions against the United States. After the US raised tariffs on steel and aluminum imports from India, India responded by increasing tariffs on several American goods, including almonds, apples, and some electronics. This shows how developing countries may react to protectionist policies from larger nations by implementing their own tariffs.

Mexico’s Reaction to US Tariffs

Mexico has also imposed reciprocal tariffs on the United States in response to various tariff announcements from Washington D.C., especially those impacting steel and agricultural goods. The Mexican government has focused on key sectors important to its economy while addressing what it sees as unfair trade practices.

What is Tariff War?

Tariff wars refer to the imposition of tariffs or duties on imported goods by one country, leading to retaliatory measures by trading partners. The key points to consider when analyzing tariff wars include their impact on trade relationships, economies, consumers, and global stability.

Effects of tariff wars:

Disruption of international trade flows: Tariff wars often lead to a decrease in imports and exports between countries, disrupting established supply chains and affecting businesses that rely on global trade.

Increase in prices: Tariffs can lead to higher prices for imported goods, impacting consumers who may have to pay more for products they rely on.

Economic uncertainty: Tariff wars can create uncertainty in the global economy, making businesses hesitant to invest or expand, which can negatively impact economic growth.

Retaliatory measures: Tariff wars can escalate as countries retaliate with their own tariffs, leading to a cycle of increasing trade barriers and tensions.

Author: currentaffairs4upsc

UPSC