Know About – How Tariffs will Hit, Whom

Why in News:

Former US President Donald Trump, in his new campaign pitch, celebrated “America’s Liberation Day” by announcing a sweeping set of “reciprocal tariffs” on all major trading partners, including India. These tariffs are positioned as a response to America’s massive trade deficit and are likely to have far-reaching implications for the global economy — ranging from slower growth and inflation to even the risk of economic depression in severe cases.

Introduction:

Tariffs are taxes imposed on imported goods, and their application has a profound impact on trade relationships. The latest wave of reciprocal tariffs announced by Donald Trump affects nearly all major trading partners of the United States, especially developing economies like Cambodia, Vietnam, Sri Lanka, and India. With a focus on “equal treatment” and “fair trade,” the U.S. aims to reverse its trade deficit — the gap between the value of its imports and exports — which stood at $1.2 trillion in 2024.

This article delves into who is being affected most, what the data reveals, and how different countries are responding, while also highlighting the broader economic and political implications.

Point-wise Summary:

1. Trump’s Announcement:

• Two sets of tariffs announced:
  • Basic Tariff: A flat 10% tariff on all goods from countries with existing trade imbalances with the US.
  • Country-specific Tariffs: Targeted tariffs based on the trade deficit amount and goods exported from those countries to the US. Will be enforced from April 9, 2025.

2. Disproportionate Burden on Low-Income Countries:

• Countries with low per capita income have been hit hardest:
  • Cambodia: 97% US tariff
  • Vietnam: 92%
  • Sri Lanka: 85%
  • Bangladesh: 73%
• These nations are significantly poorer than the US (whose per capita income is ~$89,650) yet face the highest tariffs.

3. India’s Position:

• India faces a 52% tariff on its goods, with a reciprocal tariff rate of 27%.
• Trump’s tariff plan claims India’s tariff regime is restrictive and non-transparent.
• Sectors likely to be hit include:
  • Solar modules
  • Telecom equipment
  • Agri-inputs (due to subsidy issues)
  • Electronics and pharmaceuticals

4. Countries Not Spared Despite Surpluses:

• Even US trade surplus countries (i.e., US exports more than it imports) such as:
  • UK, Brazil, Singapore, Colombia
  • Still face the 10% base tariffs.

5. Making America Wealthy Again — At Whose Cost?

• Chart shows a wide disparity in trade deficits and per capita incomes:
  • Example: Cambodia contributes only $300 million to US trade deficit but faces a 97% tariff.
  • India contributes $46.6 billion to the trade deficit and is taxed at 52%.
• Richer countries like Switzerland and Singapore (higher per capita income than the US) face minimal tariffs.

6. Trump’s Justification:

• Trump argues past administrations were “kind” and allowed other nations to take unfair advantage of open U.S. markets.
• Wants reciprocity in global trade, particularly targeting India and China.

7. Economic Implications Globally:

• Tariffs may lead to:
  • Higher inflation in the US
  • Reduced exports from developing economies
  • Global supply chain disruptions
  • Slowdown in global economic growth
  • Possibility of economic depression

8. Impact on US Consumers:

• Higher tariffs = higher prices for imported goods.
• E.g., If ₹85 = $1, Indian goods become 27% more expensive for US consumers.
• Inflation in essential goods like medicines and electronics may follow.

9. India’s Trade Practices Under Scrutiny:

• US Trade Department criticized India’s:
  • High tariffs
  • Opaque subsidy regime
  • Restrictions on agricultural inputs
  • Lack of transparency in policymaking
• Example: India imposed sudden tariff changes on telecom equipment and solar lanterns.

10. Concerns Over Policy Arbitrary Actions:

• India often:
  • Amends tariff schedules without notice
  • Changes customs rules via gazettes without public input
  • Introduces inconsistent digital and data policies

11. Broader Takeaway — Global Economic Risk:

• These tariffs symbolize a new trade order, breaking away from globalization.
• As global retaliation grows, the world may move toward protectionism, potentially triggering:
  • Economic nationalism
  • Slower trade
  • Global job losses
  • Political tensions

Notable Data Table from Article:

Notes (Explanation of Peculiar Terms):

1. Reciprocal Tariffs:

Duties imposed to match or counter a trading partner’s existing tariff rates to create a level playing field.

2. Trade Deficit:

When a country imports more than it exports. The U.S. has a $1.2 trillion trade deficit.

3. Per Capita Income:

Average income earned by a person in a given country in a year, used to assess economic development.

4. Economic Depression:

A prolonged period of economic downturn characterized by massive unemployment, low demand, and reduced trade activities.

5. Subsidy Regime:

Government support provided to domestic industries or consumers, sometimes considered unfair trade practices under WTO rules.

Relevance for CLAT Aspirants:

Current Affairs:

• Tariff policies, trade wars, and India’s foreign economic relations are frequently tested in the CLAT GK section.

Legal Awareness:

• Issues of international trade law, WTO norms, and bilateral trade practices are relevant for understanding the global legal framework.

Essay Topics and PI Questions:

• “Protectionism vs Globalization”
• “India’s Trade Challenges in a Post-Global World”
• “Is Trump’s Tariff Strategy Justified?”

Analytical Thinking:

• Students must understand the economic logic behind tariffs, and their impact on domestic industries, consumer prices, and global diplomacy.

Conclusion:

Trump’s tariff announcement has not only rattled international markets but also reignited debates on economic fairness, globalization, and trade equity. India, along with other low and middle-income countries, finds itself disproportionately affected. With risks of inflation, job loss, and international friction looming, it’s imperative for countries like India to rethink trade policies, promote transparent governance, and engage more effectively in global economic forums.

This event is a must-follow development for CLAT aspirants, as it encompasses international economics, law, and current affairs, all in one.