Slow US tariffs on a variety of Indian products came into effect on Wednesday, causing a sharp blow to India’s overseas trade in its largest export market, the AP reported.
President Donald Trump initially announced a 25% tariff on Indian goods. But earlier this month, he signed an executive order, which would impose an additional 25% tariffs on India’s purchase of Russian oil, bringing the total tariffs imposed on allies to 50%.
The Indian government estimates that tariffs will affect exports worth $48.2 billion. Authorities warn that the new obligations are commercially unfeasible and could lead to unemployment and slowing economic growth.
Trade ties between India and the US have grown in recent years, but remain vulnerable to conflicts over market access and domestic political pressure. India is one of the fastest growing major global economies and could face slowdown as a result.
Estimates from the Global Trade Research Initiative, a New Delhi-based think tank, suggest that labor-intensive sectors such as textiles, gems, gems, leather goods, food and automobiles will be hit hardest.
“The new tariff regime is a strategic shock that could wipe out India’s long-standing presence in the US, causing unemployment in export-led hubs and undermining its role in the industrial value chain.”
For now, the US has exempt some sectors, such as medicines and electronic goods from additional tariffs, and is bringing some relief to India as exposure in these sectors is important.
Puran Dawar, a leather shoe exporter in Agra city in northern India, says that the industry will be hit hard in the short term unless domestic demand is strengthened and other overseas markets buy Indian goods.
“This is an absolute shock,” said Dowar, whose business with the US has grown in recent years. Dawar’s clients include Zara, a leading fashion retailer.
Dawar, the regional chairman of the Leather Export Council, also said he is an export promotion group.
A group representing exporters warns that new import duties could hurt Indian small businesses, which are heavily dependent on the US market.
“This is a difficult situation. Some product lines will simply become unfeasible overnight,” said Ajaysahai, Director of India’s Export Machines Association.
This tariff comes as the US administration continues to seek greater access to India’s agriculture and dairy sector.
India and the US have negotiated five rounds for a bilateral trade agreement, but have yet to reach a deal. This is mainly because New Delhi resisted opening these sectors to cheaper American imports.
Prime Minister Narendra Modi vowed not to succumb to pressure.
“For me, the interest in farmers, small businesses and dairy products is at the top. My government ensures they are not affected,” Modi said at a rally in Gujarat this week.
Modi said the world is witnessing “politics of economic selfishness.”
The US delegation has cancelled plans to visit New Delhi this week for sixth round of trade talks.
The Indian government has begun working on reforms to promote local consumption and isolate the economy.
Prior to the major Hindu festival in Diuwali in October, the goods and services tax or sales tax has now been changed to reduce costs for insurance, automobiles and appliances.
The government council will meet early next month to decide whether to cut taxes.
The Ministry of Trade and Treasury discusses financial incentives, including advantageous bank loan fees for exporters.
The Ministry of Trade is also considering steps to expand exports to other regions, particularly Latin America, Africa and Southeast Asia. Trade negotiations with the European Union could gain new urgency as India works to reduce its dependence on the US market.