Use the fiscal need driving up US tariffs to negotiate a deal with it

As the US heads for a fiscal cliff, nations on tariff peaks could propose revenue-maximizing rates that benefit the US exchequer

- INDIRA RAJARAMAN

Although the 50% levy by the United States on Indian exports and all other tariff changes since April 2025 now face a legal challenge in US courts, Indian policy has to run with the tariffs for now, and work on palliative measures. A few sectors are exempted (so far) from the India-specific tariff: pharmaceuticals, smartphones and refined petroleum among them. Brazil keeps India company at 50%. The rates on China are not settled. Some sectors like steel are uniform across countries. The 50% tariff translates to a roughly 25-30% relative tariff disadvantage against equivalent competitors in the US market.

To get a handle on a tariff disadvantage of that size, we need to circle back to 1971, when under the Generalised System of Preferences (GSP) proposed by an arm of the United Nations (UNCTAD), India and other developing countries were allowed preferential tariffs.

The GSP scheme of the US was enacted in 1974, when its average MFN rate (uniform 'most favoured nation' tariff for all countries) was 4%. In June 2019, the US terminated India's eligibility and then closed the scheme altogether at the end of 2020. The closure of GSP was a difficult transition for exporters targeting the US market. And the GSP offered just a 4% advantage, at most.