Trade to Brace for Trump's Tariff Surprise
In a move that could potentially disrupt the global trade landscape, US President Donald Trump has announced a 25% duty on steel and aluminium imports, and reciprocal duties on all other imports from all countries. This decision, part of his populist agenda to find jobs for his support base in the US rust belt, threatens to damage the US-led alliance based on the Bretton Woods system and could potentially damage the global free trade regime that has kept inflation in manufactured products under control for the last 20 years.
The specific details of the reciprocal duties on all other imports from all countries have not been specified in Trump's announcement. However, the ten largest trade partners Trump targeted in 2024 with steel and aluminum export-related tariffs included Canada (the most important source country), the European Union, Mexico, South Korea, and Brazil among others, reflecting key steel and aluminum import origins to the USA.
India, the ninth largest exporter of steel to the US, with $1.9 billion in sales, and the tenth largest exporter of aluminium to the US, with $270 million worth of sales in 2024, is among the affected countries. India's share in US imports is 2.6%, amounting to $82.9 billion. This move could impact the Indian economy, with the possibility of imported inflation due to rupee weakness caused by Trump's tariffs.
Moreover, India enjoys a trade surplus of $34.4 billion with the US. Trump is focused on reducing this trade surplus and wants India to buy more from the US. However, American manufactured products are unlikely to compete with those made in India, even with zero duties. Fleeing foreign investors could also affect stock valuations in India due to Trump's tariffs.
The World Trade Organisation's (WTO) response to Trump's tariff announcement is not yet known. Trump's announcement almost upends the WTO's mandate to promote free trade, a development that could have far-reaching implications for the global economy. The impact of Trump's tariff announcement on the global economy is yet to be fully understood, but it is clear that it could potentially disrupt the established order of global trade.
Prime Minister Narendra Modi should consider offering a free trade agreement during his US visit, a move that could help mitigate the potential negative effects of Trump's tariffs on the Indian economy. As the global community watches the unfolding developments, it is crucial to assess the potential consequences of Trump's tariff announcement and to explore ways to maintain the principles of free trade that have underpinned global economic growth for decades.
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