US Trade Shock Merits Creative Response

Wide-ranging policy reforms are needed to counter American trade shock

- AMITA BATRA

In an overt display of politically motivated trade policy by United States President Donald Trump, India was targeted earlier this month with an exceptionally high cumulative tariff of 50 per cent. Almost a month later, with the penalty component now in effect, Indian exporters remain on tenterhooks, awaiting a positive—perhaps elusive—outcome of the Trump-Putin-Zelenskyy meetings and the rescheduling of stalled negotiations on a trade deal with the US. As the US is the largest market for our major exports, especially labor-intensive sectors like textiles and apparel, seafood, and gems and jewelry, a trade deal will need to be negotiated in due course.

It is, however, worth mentioning that almost all bilateral trade deals announced by President Trump thus far, other than the one with the United Kingdom, do not have a supporting legal text, are fuzzy on detail, and hence open to differing interpretations. The tariff stacking "mistake" in the implementation of the US-Japan trade deal and the "conditional" application of a 15 per cent tariff by the US on auto imports from the European Union, specified a month after the original announcement, are evidence of embedded ambiguities. A penalty tariff for transshipment of goods has been indicated in the deal with Vietnam, but the corresponding rules of origin (RoOs) have not yet been specified. Continued negotiations and pending investigations under section 232 imply prolonged unpredictability in US trade policy. Also, US trade protectionism is likely to persist, given that the tariff hike during Trump 1.0 was not reversed by Joe Biden during his presidency. So, India's trade policy response needs to be formulated with a longer-term vision.