Reciprocal tariffs: Former RBI governor Raghuram Rajan calls Trump's tariffs a 'self goal' 

Former RBI governor Raghuram Rajan criticized the Trump administration's decision to impose reciprocal tariffs on approximately 60 countries, describing it as a "self-inflicted wound." He pointed out that while the move would primarily harm the US economy, its impact on India would be limited.

US President Donald Trump on Thursday morning announced new ad-valorem duties ranging from 10% to 50% on imports from all trading partners. The initial 10% tariff is set to take effect on April 5, followed by a 27% duty on April 9. Certain sectors, such as pharmaceuticals, semiconductors, and energy products, have been granted exemptions.

Rajan emphasized that the immediate consequence of these tariffs would be detrimental to the US economy, calling it a self-defeating move. He also noted that the tariffs would lead to higher prices for US consumers, reducing their demand and ultimately impacting Indian growth.

Rajan, in an interview with news agency PTI, "Let us recognise that in the short run, this will adversely affect the US economy first and foremost, it is a self-goal as footballers would say. Coming to the effects on other countries, the direct effect of any tariff on India's exports will be to raise prices for US consumers, reducing their demand, and hence Indian growth." 

According to Rajan, the tariffs are expected to raise prices for US consumers, which in turn could decrease their demand and possibly slow down India's exports. However, since the US has imposed tariffs on other countries as well, the impact on India may not be as severe.

He explained that the overall effect of the tariffs on India may not be as significant as if they were only targeted at India, since US consumers may not be able to switch to non-tariffed producers if they are also competing with producers from other countries.

"Of course, to the extent that the US has applied tariffs on other countries also, and India is competing with producers from those countries, the overall effect will be smaller than if the tariffs had been applied only on India, since US consumers will not be able to substitute away to non-tariffed producers," the eminent economist noted.

Rajan explained the ultimate objective of Trump is to increase domestic production in the US. However, even if this initiative proves successful, it will likely require a considerable amount of time to materialise. 

In the meantime, the decrease in India's exports could result in a surplus of goods within the domestic market, potentially leading to a decrease in tariffs. Additionally, countries such as China may seek to ramp up exports to India due to limitations in access to the US market.

Advantage India?

When asked if India can capitalise on the current crisis, Rajan highlighted the potential benefits of reducing tariffs, regardless of the impact on negotiations with the US. 

He emphasized the importance of adapting to a more protectionist global trade environment and suggested exploring trade opportunities with regions such as ASEAN, Japan, Africa, and Europe. Rajan also stressed the need to strengthen relationships within SAARC and overcome political differences to ensure South Asia remains relevant in a world of regional trading blocks.

Reciprocal tariffs

President Trump has implemented a 26% reciprocal tariff on India, citing the country's high duty on motorcycles and other trade barriers.
Trump has accused India of currency manipulation and trade restrictions, stating that the new tariff is a necessary countermeasure.

Various countries, including China (34%), Vietnam (46%), India (26% -later corrected to 27%), South Korea (25%), the EU (20%), and others, are facing higher tariffs due to their trade barriers and currency practices.

President Trump has utilised the International Emergency Economic Powers Act, pointing to the $918 billion US trade deficit to justify his aggressive protectionist policies.

Sweeping tariffs have been announced by Trump, citing concerns of economic exploitation by other nations.
Trump argues that these tariffs will help bring back factory jobs but may also result in price hikes.
Furthermore, additional levies have been imposed on auto imports, as well as steel, aluminum, and oil from Venezuela.

The comprehensive list of reciprocal tariffs disclosed by President Trump:

China: 34%
European Union: 20%
South Korea: 25%
India: 26% (later corrected to 27%)
Vietnam: 46%
Taiwan: 32%
Japan: 24%
Thailand: 36%
Switzerland: 31%
Indonesia: 32%
Malaysia: 24%
Cambodia: 49%
United Kingdom: 10%
South Africa: 30%
Brazil: 10%
Bangladesh: 37%
Singapore: 10%
Israel: 17%
Philippines: 17%
Chile: 10%
Australia: 10%
Pakistan: 29%
Turkey: 10%
Sri Lanka: 44%
Colombia: 10%