Delhi find itself in a challenging position with Donald, Dragon, and Dollar: a turbulent triangle of politics, economic interests, and international relations. Abhijit Bhattacharyya sheds light on this complex situation.
In a recent meeting with Prime Minister Narendra Modi, President Donald Trump announced ambitious plans to more than double bilateral trade between the US and India, setting a target of $500 billion within the next five years. However, this optimistic outlook is overshadowed by the ongoing trade conflicts that have already begun between the US and several nations, including India.
The US President has not been shy about imposing tariffs on key trading partners, such as Canada, Mexico, and China. This tariff-cum-trade war has escalated tensions, with retaliatory measures being imposed by affected countries. Mr. Trump's announcement of "retaliatory" tariffs on all countries, including India, has added another layer of complexity to the already intricate web of global trade.
India, in particular, finds itself in a precarious position. The country faces a significant trade surplus with the US, totalling $35 billion, and a trade deficit with China worth $110 billion. To address this imbalance and ease the trade conflict with the US, the Indian Finance Minister made budget changes, removing special taxes on US goods from February 1, 2025. However, the US has not been reciprocal, imposing or adjusting tariffs on goods from India and other countries like Brazil, South Korea, Thailand, Cambodia, and Pakistan.
The US dollar's universally accepted status gives it a powerful influence in global trade negotiations. Mr. Trump's psyche is deeply influenced by the words "tariff, transaction, trade, and territory," and he has been vocal about his disapproval of nations considering replacing the dollar for trade purposes. In a statement to the Brics nations, including India, he warned of consequences if they were to pursue such a move.
The Indian government, keen to avoid being perceived as protectionist, has made budget changes to appease Mr. Trump. The President has suggested buying more American goods, including warplanes, defense equipment, oil, and gas, as a means to reduce the trade surplus between the two nations.
However, India's economic stability is not solely dependent on the US dollar. The country's currency, the rupee, is chronically weak, making imports too heavy to bear. The Reserve Bank of India (RBI) manages the rupee but has its limits, and constant intervention affects foreign currency reserves. The constant threat of trade wars and tariffs adds to the pressure on the RBI, making its job even more challenging.
The ongoing trade tensions have taken a toll on the World Trade Organisation (WTO), which is virtually in the ICU for the foreseeable future. The lack of communication and cooperation between world leaders, such as Mr. Trump's sudden imposition of tariffs without prior notice to China, has led to immediate retaliatory measures, as seen in China's instant retaliatory tariffs on American goods.
In the face of these challenges, India finds itself caught in a pincer movement between Donald Trump and China. The President's unpredictable policies and hardline stance on trade have instilled a sense of fear and uncertainty among friends and foes alike. The writer, a former chief commissioner of customs in Hyderabad and Delhi, notes that a stable currency is crucial for a nation's progress, and the current trade environment poses significant challenges to India's economic development.
As the world watches with bated breath, the future of global trade hangs in the balance. The ongoing trade tensions, fuelled by protectionist policies and unilateral decisions, threaten to disrupt the delicate balance of the global economy. It remains to be seen how nations will navigate these treacherous waters and emerge on the other side unscathed.
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