India responds to US tariffs with equivalent duties of its own

Last week, the Indian government told the World Trade Organisation that it intended to increase tariffs on around 30 goods imported from the US. This checklist of imported items included high-end motorcycles, shrimps, almonds, industrial machinery and chemicals.

The higher tariffs, which come into effect later this week, are a direct response to the 25% and 10% duty, respectively, that the US had levied on all steel and aluminium imports. India had hoped for an exemption from the Trump administration, but its requests fell on deaf ears.

The move, in principle, amounts to a zero-sum exercise, according to officials from India’s commerce ministry. The tariffs on steel and aluminium imports from India is estimated to cost the Indian government around $240 million. As a result, the list of items to impose reciprocal tariffs upon was compiled with the goal of earning back that $240 million.

A symbolic gesture

These tariffs are a symbolic gesture in many ways. The Indian government knows it has to counterbalance the need for retaliation with the preferences of domestic consumers of these imported goods, who will feel the impact of a rise in prices.

Hence, the punitive measures will only affect trade between the two countries to a limited extent. And it will barely register to the US, in an absolute sense, since it exports $1.4 trillion worth of goods.

None of the aforementioned goods are necessary for the daily functioning of Indians. Motorcycles were included on the list since the Trump administration repeatedly singled out India’s trade treatment of Harley Davidson motorcycles.

India is also presenting a united front along with other US trade partners like China and the European Union, who are also proposing to enforce tariffs against US goods.

China’s case in particular, is a lot more pressing in terms of the total value of trade impacted. The US’ tariffs on steel and aluminum imports will affect $50 billion worth of Chinese products. In response, the Chinese government is slapping higher duties on 545 categories of goods, including electric vehicles and chicken - a move that will affect $34 billion worth of products, pending an additional $16 billion.

Hope for reconciliation

Trade representatives from both the US and India are set to meet at the end of June to address a number of trade-related issues, including agricultural subsidies and increased tariffs on certain goods.

The higher tariffs on the imports of 30 goods from the US are an important bargaining ploy in this regard, to show that India is capable of reciprocating any unfavourable measures from its large trading partner.