Mohsin Raza Khan
When U.S. President Donald Trump announced double-digit tariffs on countries around the world, what he dubbed a “Liberation Day” for U.S. trade, it roiled global markets. While Trump has since announced a “pause” on the tariffs, the final resolution of the tariff threat will hinge on “bespoke” negotiations between the White House and each targeted country.
India faced a 26 percent tariff rate under the original announcement, which has now been cut to 10 percent amid the 90-day pause. India needs some innovative solutions to turn this into an opportunity rather than sticking to the usual bureaucratic ways of negotiating, which could cause a severe setback to its growth trajectory. Any potential retaliation is out of the question, since the United States has escalation dominance due to its 10 times larger GDP and consumer market. Instead, India should drop all non-agricultural tariffs on U.S. imports to zero.
There are multiple benefits of such an approach. First, there would be little change to India’s import bill due to the high costs of U.S. manufactured goods; even without tariffs, they will remain uncompetitive. However, dropping tariffs would help India’s exports and manufacturing even if the United States eventually scraps its “Liberation Day” threat, since India’s leading economists have long believed a reduction in tariffs is necessary to boost exports. Finally, such an offer to Trump could save India from a potential economic downturn given the size of Trump’s tariffs – even the lowered 10 percent rate is concerning – and safeguard India’s future growth and employment trajectory, which is highly U.S. dependent. This is an offer Vietnam and Cambodia have already made to Donald Trump, and he is looking at it positively and willing to cut deals.