US imposes 25% tariff on India: Trade, politics, and the bigger picture

Items like luxury cars, watches, and electronic gadgets often face 30% to 100% tariffs when entering India. This significantly raises the price and makes them less attractive to Indian consumers, who might then choose similar items from other countries.

- DR. AMAN KUMAR SHARMA & SHELU SHARMA

In a significant development that could reshape global trade dynamics, the United States has announced a 25% tariff on selected Indian goods. Alongside this, a new oil-related project and trade deal with Pakistan have emerged, adding layers to an already complex geopolitical and economic scenario.

WHAT IS A TARIFF AND WHY IS IT IMPORTANT?

A tariff is a kind of tax or duty imposed by one country on goods imported from another. For example, if an American car priced at 50 lakhs is imported into India and a 100% tariff is applied, the price effectively becomes 1 crore. The extra money goes to the Indian government, making imported products more expensive and less competitive compared to local alternatives. In reverse, if Indian goods go to the US and are hit with a 25% tariff, those products become costlier for American consumers. The US government earns revenue from these tariffs, but the higher cost discourages imports, impacting foreign exporters like Indian businesses.

THE TRADE DEFICIT TRIGGER

One of the main reasons the US has imposed this tariff is the growing trade imbalance between the two nations. India has consistently maintained a trade surplus with the US, meaning it exports far more than it imports. Last year alone, India had a trade surplus of around $40 billion.

From the American perspective, this isn't ideal. The US wants to reduce this gap and balance the trade relationship. Many analysts believe that the tariff is a pressure tactic to push India into a bilateral trade agreement that would allow US companies more access and favorable conditions in the Indian market.

INDIA: THE "TARIFF KING"?