DC Edit | More Tariffs? India Must Up the Ante in US Trade Talks

The Donald Trump administration has proposed new tariffs of up to 12.5 per cent on imports from 60 economies, including India, accusing them of failing to curb trade in goods made with forced labour. The new tariff proposal was made under Section 301 of the Trade Act of 1974, which addresses unfair foreign acts, policies, or practices affecting the United States.

Currently, Indian goods imported into the United States attract a basic harmonised base rate ranging from nil to 35 per cent. In addition, Indian goods are charged a 10 per cent General Import Surcharge. The new tariff proposal will add another 12.5 per cent burden on Indian goods.

The announcement of the new tariff under Section 301 is significant as it comes amid talks between India and the US on an interim bilateral trade agreement (BTA). Ever since the Supreme Court of the United States rejected Mr Trump’s insistence on having the power to arbitrarily impose tariffs on all countries by invoking his emergency powers, the issue has remained contentious.

Under the emergency provisions, Mr Trump imposed a 50 per cent tariff on Indian goods — a 25 per cent rate of reciprocal tariffs and another 25 per cent punitive tariff for India buying Russian oil. After four months, Mr Trump reduced the reciprocal tariff to 18 per cent from the previous 25 per cent and ended the tariff imposed on India for buying Russian crude.

After the US court’s ruling, the effective rate dropped to 10 per cent. But the US negotiators insist that India stick to the 18 per cent tariff previously agreed upon by both countries, while New Delhi wants iron-clad guarantees from the Trump administration or its successor. With this, the total incidence of tariffs — reciprocal and forced labour — has increased from 10 per cent to 22.5 per cent, the highest tariff in South Asia, with Washington’s current favourites, Bangladesh and Pakistan, attracting merely a 10 per cent tariff.

The new tariff decision — which came merely days after US secretary of state Marco Rubio and US secretary of defence Pete Hegseth repeated India’s strategic importance to the US — shows the Trump administration’s duplicity in Indian affairs. Under the Trump administration, India-US relations have lost strategic depth and become adversarial.

Businesses need policy certainty to invest their money. For India and its businesses, the Trump administration 2.0 provides anything but policy clarity. Relations between the two important democracies have become transactional. In such a scenario, India must clearly insist that the United States forego arbitrary tariff increases and other non-tariff restrictions if both countries agree on a trade deal. If the United States is not ready to bind itself to the trade deal, India must not be in haste to sign it.

Exports contribute around 20 per cent of India’s economy. If the US does not buy from India, the economy will surely take a hit, but it will not go down the drain. No doubt, the US is an important trade partner for India, but so is India for the America-led global order.