Context:
- The U.S., under President Trump, has imposed reciprocal tariffs on multiple countries, including India.
- India has responded by reducing tariffs on select U.S. goods and exploring a bilateral trade agreement.
- The debate centers on whether India should further reduce tariffs in response to U.S. pressure.
Relevance : GS 2(International Relations ), GS 3(Economy)
Economic Consensus on Tariffs:
- Lower tariffs are generally seen as beneficial for economic growth and efficiency.
- Tariffs distort resource allocation and reduce global competitiveness.
- Uniform and low tariff structures help improve production and consumption efficiency.
Consumers vs. Producers:
- High tariffs protect inefficient producers but penalize consumers through higher prices.
- Efficient production should be prioritized — if a domestic firm can’t compete globally, resources should shift to sectors where India has a comparative advantage.
- High tariffs contradict the spirit of economic efficiency and global integration.
U.S. Strategy – Bargaining or Protectionism?
- U.S. tariff hikes appear to be a bargaining tool to lower global trade barriers.
- However, country-specific rules and non-uniform tariff negotiations can destabilize global trade structures.
- While such pressure may have short-term gains, it also introduces uncertainty and disrupts global supply chains.
WTO and Global Trade Governance:
- The WTO is increasingly seen as dysfunctional, limiting its role in enforcing global trade norms.
- The U.S. bypassing multilateral institutions reflects frustration with global trade deadlocks.
- India has also often resisted global trade liberalization at WTO platforms.
Non-Tariff Barriers (NTBs):
- NTBs are more pervasive and opaque than tariffs — including quality standards, regulatory hurdles, and procedural delays.
- These barriers exist both in India and globally, affecting importers and exporters alike.
- NTBs can sometimes be disguised protectionism and are harder to negotiate or quantify.
What Should India Do?
- Yes, reduce tariffs — but gradually and predictably to allow industry adjustment.
- Follow a transparent timeline for tariff reduction to improve investor confidence.
- Complement tariff reduction with trade agreements with the U.S., EU, UK, Japan, etc.
- Move toward comprehensive trade liberalisation to boost competitiveness and attract investment.
Conclusion:
- While U.S. tariff aggression raises global uncertainties, India should not react defensively.
- A strategic and phased reduction of tariffs, along with simplification of NTBs and trade diversification, can transform India’s trade architecture.
- India should focus on long-term economic efficiency, not short-term protectionism.
