Editorial: Reciprocal tariffs and risk mitigation

The world has been waiting with bated breath for US President Donald Trump’s April 2 announcement regarding reciprocal tariffs. Though the broad contours of it have been out in the open with the President and others talking about it, it seemed like there was not much room for rethinking or backing off temporarily. Yet, given the mercurial and whimsical tendencies in the decision-making in the US under the present dispensation, nations are keeping their fingers crossed.

The media has been reporting or speculating about the mysterious goings-on in White House circles regarding the tariffs. Even diehard optimists are unable to keep their faith, and pessimists are imagining worse-case scenarios. Trump’s plans are arising out of complex motivations, some extraneous to trade and even geopolitical calculations. It is difficult to decode the hierarchy of these motivations. What relative importance is being given to economy and trade on the one hand and geopolitical game plans on the other?

There’s some clarity regarding trade and business objectives. Two of them are reworking the terms to achieve a “level-playing field” in foreign trade and also fix issues relating to boosting revenue and manufacturing. Even the critics seem to agree that there’s some merit in these arguments, and the claims appear legitimate. What think tanks and international relations pundits are perplexed about is its ramifications and whether the administration has thought through all the scenarios and has a plan in place to steer it through choppy waters.

What puzzles many is whether the US foresaw the response it would elicit. Countries could put aside their longstanding disagreements bordering on hostility and join hands to deal with the aftermath of US tariffs. For instance, despite having serious contradictions and disagreements in foreign relations, China, Japan and South Korea are now talking about jointly promoting regional and global trade, which indicates the possibility of a coordinated response to US tariffs. The European Union, which has been an old ally of the US, is forced to talk about strong retaliation but in the same breath is also saying that it was open to negotiations.

The Indian government and industry leaders are watching how things will unfold. There are reports about sectors likely to be hit by the reciprocal tariffs. Besides agriculture, automobiles, jewellery, textiles and apparel, there are worries about its impact on cheaper crude oil from Russia as Trump, who is unhappy with Russia for not falling in line with US demands regarding ending the conflict with Ukraine, has hinted to use tariffs as a tool.

Like some other countries, including EU members, India too appears to be keen on averting any confrontation and wants to settle the issue amicably. This was evident in India’s willingness to scrap the so-called “Google tax” which is a colloquial phrase for the “Equalisation Levy” imposed on foreign digital platforms making money through advertising and e-commerce services. India is reportedly open to revising, that is, cutting tariffs and other measures such as increasing crude oil imports from the US to strike a balance with imports from Russia. India is in a damage-control mode, but it needs to adopt a calibrated approach and chalk out alternative plans based on pragmatism. For instance, the other day, through a congratulatory message on the 75th anniversary of India-China diplomatic relations, China was seen seeking closer ties with India.