Reciprocal tariffs: Should India respond to Trump’s move at all?

Subscribe to enjoy similar stories. On Thursday, the Office of the United States Trade Representative (USTR) published the formula by which US reciprocal tariffs are to be calculated. The New York Times also published what calculation resulted in country-wise tariffs from 9 April onwards that range in a wide band.

Reciprocal levies are set at 34% for China (which already had 20%), 27% for India, 20% for the EU and so on. According to Trump, these rates are only half of what they should be and therefore display US “magnanimity." From all indications, the motive behind the US reciprocal tariff regime is to push its trade partners to balance their bilateral trade with it. Israel has already responded by unilaterally eliminating all tariffs on US imports.

On the other hand, it is not clear how countries faced with much higher tariffs should respond. Should one retaliate? Should one do nothing? How should India respond? These are some of the questions I will take up here. But first, some other issues should be clear.

Keep in mind that the proposed tariffs are on merchandise trade. As I have argued before (see Mint, 20 January), the US no longer has the impact on trade it had even 20 years ago. In simple terms, US import demand today constitutes only about 13% of world demand for goods.

Even if one adds the fact that some exporters like China and the EU have routed exports to the US via Mexico and these got logged as Mexican demand, America’s total—direct and indirect—share of world imports would not go above 15%. This is a far cry from the 20% direct US share in world imports back in 1990. And an even farther cry from the 60% odd US share in 1950.