Sweeping Tariffs

US President Donald Trump's decision to impose new tariffs on a wide range of imports from India, ostensibly a penalty for buying Russian oil, represents another shock to the international trading system - and a sharp reversal of good relations with Indian Prime Minister Narendra Modi. These tariffs could disrupt the Indian economy, which has benefited immensely from global integration. But the greater risk lies in their potential to influence the country’s long-term strategic direction.

- 

To be sure, several factors will mitigate the immediate impact of Trump’s tariffs. Despite being India’s largest trading partner, the United States is a distant country, and high transport costs have led India to diversify its trade relationships. Moreover, international markets are not static, and Trump’s global tariff war will redirect trade flows and reconfigure supply chains all over the world. Indian exporters — like their counterparts in other countries - will invariably find new markets, though the transition costs implied by this shift are likely to be high.

Consider also that the new US tariffs apply to roughly $65 billion in annual merchandise exports from India. With the country’s total merchandise exports reaching around $441 billion in the last fiscal year, the affected goods constitute less than 15 per cent of these trade flows. While not insignificant, this figure is unlikely to cripple India’s export economy.

A narrow focus on merchandise also overlooks the most dynamic component of India’s trade portfolio: services. With annual services exports now exceeding $380 billion and growing robustly, this sector is the true engine of India’s global economic ascent. Crucially, these exports - which include IT services, financial services, business-process outsourcing, and research and development - are not subject to tariffs.