Mentor’s Comment:  In the three months since U.S. President Donald Trump introduced his “America First” trade policy—using trade measures to pressure other countries into giving concessions—there are signs it could seriously harm the global economy. A key part of this plan was the introduction of “reciprocal tariffs” to counter what Trump saw as unfair trade practices by other nations. However, on April 9, the day these tariffs were supposed to begin, Trump changed his mind and delayed their implementation by 90 days for all 57 target countries—except China.

Today’s editorial discusses how Trump’s views on reciprocal tariffs have changed over time. This topic is useful for General Studies Paper 2 (International Relations) and Paper 3 (Indian Economy).

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Let’s learn!

Why in the News?

Recently, China’s unexpected response to Trump’s trade war showed its smart long-term planning. By preparing for risks from aggressive trade partners, it managed to handle one of the worst trade tensions ever.

What are the main features of Trump’s “America First” trade policy?

• Imposition of Reciprocal Tariffs: The U.S. aimed to impose tariffs on imports from countries that had higher duties on American goods. Eg: A 34% tariff was imposed on Chinese goods, leading to retaliation from China.
• Push for Bilateral Trade Deals: Trump preferred one-on-one negotiations over multilateral agreements to secure favorable terms. Eg: He delayed tariffs for 90 days to pressure 57 countries into bilateral deals.
• Targeting Trade Deficits: The policy aimed to reduce U.S. trade deficits by demanding more access to foreign markets. Eg: The U.S. demanded that India open its agricultural market and relax patent laws.

Why was the implementation of “reciprocal tariffs” postponed?

• Facilitating U.S.-India Trade Negotiations: The U.S. paused the tariffs to create a conducive environment for bilateral trade discussions with India. Both nations aim to finalize the first phase of a trade agreement by autumn 2025, targeting a bilateral trade volume of $500 billion by 2030. Eg: India is contemplating significant tariff reductions on over half of its $23 billion worth of U.S. imports, marking its most substantial tariff cut in years.
• Avoiding Economic Disruption for Indian Exporters: The tariff pause offers relief to Indian exporters, particularly in sectors like seafood, which would have been adversely affected by increased duties. Eg: Indian shrimp exporters, who rely heavily on the U.S. market, benefit from the temporary suspension, allowing continued access without additional tariffs.
• Strategic Focus on U.S.-China Trade Tensions: By postponing tariffs on India and other countries, the U.S. can concentrate its trade enforcement efforts on China, where it has imposed tariffs as high as 125%. Eg: The U.S. maintains a 10% reciprocal tariff on Indian goods, contrasting with the significantly higher tariffs on Chinese imports.
• Encouraging Indian Concessions in Trade Talks: The delay serves as an incentive for India to make concessions in ongoing trade negotiations, such as reducing tariffs and increasing imports of U.S. goods. Eg: India has agreed to lower tariffs on products like motorcycles and whiskey and to increase purchases of American defense and energy goods.
•  Preventing Market Volatility and Economic Uncertainty: Immediate implementation of reciprocal tariffs could have led to market instability and economic uncertainty. The pause allows for a more measured approach to trade policy. Eg: Following the announcement of the tariff pause, Indian stock markets rebounded, with the Nifty 50 and BSE Sensex indices experiencing significant gains.

What hurdles does the U.S. face in negotiating trade deals with countries like India?

• Tariff and Regulatory Differences: India maintains higher tariffs on several U.S. goods, and there are strict regulations in sectors like agriculture, dairy, and e-commerce that clash with U.S. interests. Eg: The U.S. has long pushed for greater market access for its dairy products, but India restricts imports based on religious and cultural norms around animal feed.
• Concerns Over Intellectual Property (IP) and Data Localization: The U.S. demands stronger IP protection and opposes India’s data localization rules that require storing data within Indian borders—citing it as a barrier to digital trade. Eg: U.S. tech giants like Amazon and Mastercard have raised concerns over India’s personal data protection policies impacting cross-border data flows.
• Divergent Strategic and Economic Priorities: India prioritizes strategic autonomy and developmental needs, which often conflict with U.S. demands for liberalized trade and investment norms. Eg: India walked out of the RCEP partly due to fears of opening up markets too quickly, showing its cautious stance in trade liberalization.

How can global economies respond to U.S. trade unilateralism?

• Strengthening Regional Trade Blocs and Multilateral Agreements: Countries can reduce dependence on the U.S. by forming or deepening trade alliances within regions to maintain economic stability. Eg: The EU signed trade agreements with Japan and Mercosur to diversify away from U.S.-centric trade after tariff tensions.
• Filing Disputes Through the WTO Framework: Nations can challenge unfair U.S. tariffs or trade actions at the World Trade Organization to uphold rules-based trade. Eg: The EU, China, and others filed WTO complaints against U.S. steel and aluminum tariffs imposed under national security grounds.
• Promoting Strategic Bilateral Partnerships: Economies can build stronger bilateral trade ties with other major players to counterbalance U.S. influence and create alternative economic hubs. Eg: China and ASEAN deepened trade through the Regional Comprehensive Economic Partnership (RCEP), enhancing trade flows in Asia-Pacific.

Way forward: 

• Revitalise Multilateralism and WTO Reforms: Global economies should work together to strengthen the rules-based trading system and push for WTO reforms to address dispute resolution and emerging trade challenges.
• Promote Inclusive and Balanced Trade Partnerships: Encourage fair, equitable trade agreements that consider development concerns of the Global South, ensuring that trade fosters mutual growth rather than unilateral advantage.

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