Basics of Tariffs & Trade Policy
- Tariff Definition: A tariff is a tax imposed by a country on the import of goods and services. It increases the cost of foreign goods, making domestic products more competitive.
- Ad valorem tariff: A percentage of the value of the good (e.g., 25% of the product’s value).
- Most Favoured Nation (MFN) Principle: WTO principle mandating non-discriminatory tariff treatment among member countries.
Relevance : GS 2(International Relations ), GS 3 (Indian Economy)
Background: U.S.–India Trade Tensions
- Historical Tensions:
- Under Trump’s presidency (2017–2021), the U.S. removed India from the Generalized System of Preferences (GSP) in 2019.
- India’s tariffs on tech and agricultural imports were long criticized by the U.S.
- Current Trigger:
- India’s purchase of oil from Russia, seen by the U.S. as indirectly supporting Moscow amid sanctions.
- Executive Order 14066 (March 2022): Declared U.S. “national emergency” over Russia’s invasion of Ukraine, basis for this trade action.
Key Details of the New Tariffs
- Initial Tariff: 25% ad valorem duty on Indian imports (effective immediately from Thursday).
- Additional Tariff: Another 25% (total 50%) to take effect 21 days later.
- Total Impact: 50% tariff on Indian goods entering U.S. markets — a significant trade barrier.
Legal Justification Cited by U.S.
- Executive Order 14066 (2022): Enables tariff measures as national security/emergency actions due to Russian aggression.
- U.S. Argument: India’s continued oil imports from Russia undermine Western sanctions.
- Labelled India as a violator of “collective economic pressure” campaign on Russia.
India’s Response
- MEA Statement:
- Tariffs termed as “unfair, unjustified, and unreasonable”.
- Cited hypocrisy: EU and U.S. continue trading with Russia in other sectors.
- Highlighted previous Western encouragement of Indian-Russian trade (including oil).
- Diplomatic Tone: Firm but non-retaliatory, focused on dialogue and defending sovereignty in trade.
India’s Oil Trade with Russia – Key Data
- Pre-Feb 2022: India imported <2% of its oil from Russia.
- Post-Ukraine War: Imports surged to 30%+, making Russia India’s top crude supplier.
- Why?: Deep discounts offered by Russia amid Western sanctions.
- Global Context:
- EU and G7 imposed oil price cap and shipping bans.
- India not party to these sanctions, continued trade based on national interest.
Implications for India
Trade & Economy:
- Could affect key Indian exports to U.S. (pharmaceuticals, textiles, machinery).
- May reduce export competitiveness in U.S. markets.
- Uncertainty in bilateral trade negotiations (e.g., Indo-Pacific Economic Framework (IPEF), India-U.S. TPF talks).
Diplomacy:
- Further strains India-U.S. relations ahead of U.S. elections and India’s strategic balancing between Russia and the West.
- Could complicate Quad dynamics and broader Indo-Pacific cooperation.
WTO Violation?
- India’s options at WTO limited as national security exceptions are hard to challenge post-Ukraine war.
- Tariff hikes bypass multilateral frameworks, using executive orders.
Geopolitical Analysis
- Strategic Autonomy: India maintains independent foreign policy, refuses to join Western sanctions against Russia.
- U.S. Election Calculus: Trump may be using India as a soft target to project foreign policy strength.
- Double Standards: India points to ongoing U.S.–Russia trade in non-oil sectors as evidence of selective targeting.
What Could India Do?
- Diplomatic Push: Use Track-I and Track-II diplomacy to reverse or mitigate tariff impact.
- Diversify Markets: Boost trade with EU, ASEAN, Africa to reduce U.S. dependence.
- Retaliatory Tariffs?: Possible under WTO norms but may escalate conflict.
- WTO Dispute Mechanism: File complaint, though national security-based tariffs are hard to reverse.
Conclusion
- This move marks a critical moment in India-U.S. economic ties, with:
- Rising geopolitical pressures
- Weaponization of trade policies
- Strategic tests for India’s non-alignment and multipolar diplomacy
- India must balance its strategic autonomy, economic interests, and global alliances carefully.
