As India and the US shake hands on a monumental trade framework, the landscape of bilateral commerce is shifting dramatically. With punitive duties gone, the tariff now stbalises at 18% for India and US on the other hand sets its sight on the potential $500 billion goal. There is a lot which this historic pivot means for manufacturers and consumers for both countries.
India-US Trade Deficit
A look at mutual import status of 2024, the pre-tariff war era, suggests a major tilt in favour of India goods being imported into US. There was a $45+Bn trade deficit in favour of India. US on the other hand always wanted a better access to US products.
India-US Tariff Gap
Similarly the tariff was also tilted towards India as higher tariff were being imposed on US goods being imported to India. A tariff of 30+% was levied on products from sectors like Agriculture, Dairy and Fisheries. Other sectors had a tariff of about 10-15%.
On the other hand India goods being imported to US had to pay a tariff of sub 5% in most cases except Dairy which was upward of 15%.
Trump Tariff War
The recent, sharp increase in US tariffs on Indian goods, was driven by a complex intersection of geopolitics and protectionism. The US administration imposed these punitive duties as a penalty for India’s continued importation of discounted Russian oil amidst the ongoing Ukraine conflict. Beyond the energy factor, this trade tension stems from persistent, deep-seated disagreements over trade imbalances, with Washington citing a substantial $45+ billion trade deficit and calling for better access for US agricultural and dairy products in Indian markets.
US Import Market and India's role in it
In term of size India contributes only about 3.00% to US import market of about $3.00 Tn and was levied an average of 3.80% tariff on those imports. The current deal post an year and a half of high tariffs of 25-50% had stabilise it at 18%.
The impact of strike down of the reciprocal and punitive tariffs by US Supreme court and the new orders of Trump administration to levy 10-15% tariffs to protect US economy, however will evolve in coming months.
The US import market is estimated to be around $3.00 Tn and India supplies a small part of that. This deal and the lowered tariff rates are seen by Indian administration as the potential for Indian exporters to leverage that $3.00 Tn market.
The US administration on the other hand would take this as a pro US deal, considering the $500 Bn commitment by India to purchase US energy, technology and coal. Also the ZERO tariff on US import to India will be seen as the potential free access for US products to India.
The deal goes beyond the business and would have geopolitical implications which would unfold in the coming times.
Source: SBI and BriefIndia
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