'If they tax us, we tax them': Trump threatens reciprocal tariffs on India
New Delhi, Dec 18, 2024
US President-elect Donald Trump vows reciprocal tariffs on India, criticising high taxes on US goods
US President-elect Donald Trump has set the stage for a potential trade conflict with India, threatening to impose reciprocal tariffs if the country continues to levy high taxes on American goods. Speaking with reporters at his Mar-a-Lago resort, Trump criticised India’s steep tariffs, including the 100 per cent tax on certain US products, and warned of a tit-for-tat approach if these practices persist.
“I’ve always said, if they tax us, we tax them the same amount,” Trump remarked, signalling a tougher stance on India and other nations like Brazil for imposing high tariffs on US imports. His comments formed part of a broader discussion on the state of US trade relations with major partners such as China, Mexico, and Canada.
The core of the dispute: India’s high tariffs
Trump specifically highlighted India’s significant tariffs on American goods, including a 100 per cent tax on items like motorcycles and consumer products. He argued that such policies create an unfair playing field for US businesses.
“The word reciprocal is important because if somebody charges us – India, we don’t have to talk about our own – if India charges us 100 per cent, do we charge them nothing for the same?” Trump stated, reiterating his view that the US should impose equivalent tariffs to address these imbalances.
Trump’s confrontational trade stance
Trump’s approach to trade has often been confrontational, and his remarks on India are consistent with this pattern. He has previously criticised trade practices with China, Mexico, and Canada. His threats of reciprocal tariffs underline his administration’s focus on addressing the US trade deficit and ensuring fair competition for American businesses globally.
What does a reciprocal tariff mean?
A reciprocal tariff refers to a tax imposed by one country on imports from another country in response to similar tariffs. Trump has made it clear that if India continues to levy high tariffs on American products, the US would respond with matching tariffs on Indian goods. Such actions could lead to higher costs for consumers in both countries and strain bilateral economic relations.
Trade wars and economic repercussions
Trump’s stance on tariffs has previously led to global trade conflicts. For example, after the US imposed tariffs on Chinese goods, China retaliated by targeting American exports like soybeans and corn, causing significant harm to US farmers. A similar trade war with India could affect industries reliant on the Indian market, including IT services, pharmaceuticals, and agriculture.
The broader trade landscape: US-Mexico-Canada relations
While focusing on India, Trump’s trade policies also pose threats to Mexico and Canada. He has reiterated plans to impose a 25 per cent tariff on imports from these countries unless they address issues such as illegal drug trafficking and migration across the US-Mexico border.
This rhetoric risks destabilising the US-Mexico-Canada Agreement (USMCA), a trade pact signed in 2020. In response to these threats, Canada has proposed a CAD 1.3 billion investment in border security to combat illegal drug trafficking and migration.
Understanding tariffs and their economic impact
Tariffs are taxes imposed on foreign goods when they are imported into a country. Importing companies often pass these costs onto consumers, resulting in higher prices for goods.
In cases where the US imposes tariffs on imports from India, Mexico, or Canada, American businesses would incur higher costs, likely leading to increased prices for consumers. For example, tariffs on car parts imported from Mexico could raise the price of American-made vehicles.
Economists warn that widespread tariffs could increase household expenses by up to $7,600 annually and push inflation by as much as 5.1 per cent. Such measures could significantly affect the purchasing power of American consumers, according to a report by The Guardian.
Trump’s trade deficit strategy
Trump’s trade policies are driven by his goal of addressing the US trade deficit, where imports exceed exports. While some economists argue that trade deficits are not inherently harmful, Trump views tariffs as a tool to correct imbalances. He believes higher import taxes would encourage companies to relocate manufacturing to the US, creating jobs and reducing the deficit.
The impact on consumers and businesses
While Trump’s tariffs aim to boost domestic manufacturing, the process is complex. Many US companies are deeply integrated into global supply chains, and reshoring production to the US would take years. In the short term, American consumers are likely to bear the brunt of increased costs.
Retail giants like Walmart and AutoZone have already indicated that they may need to raise prices if tariffs are implemented.
Retaliation and trade wars
Countries such as China, Mexico, and India are unlikely to accept US tariffs without retaliatory measures. For instance, China previously responded to US tariffs with its own taxes on American goods like soybeans and corn. A similar response from India could escalate into a full-blown trade war, harming industries in both nations.
(With agency inputs)
[The Business Standard]
