An Indian government official reportedly told Bloomberg News on Sunday that his government is “unlikely to immediately retaliate against President Donald Trump’s tariff imposition.”
Instead, New Delhi hopes to work out a deal to reduce tariffs and trade barriers on both sides, according to the media outlet. The unnamed bureaucrat expressed India’s desire to seek “dialogue and not confrontation” and “work toward a balanced and equitable trade deal with the U.S.”
The South Asian nation was hit with a 26 percent tariff last Wednesday, plus the standard ten percent applied to every other country, when President Trump revealed his schedule of levies against foreign nations worldwide. Bloomberg described the tariff as a “setback” for Prime Minister Narendra Modi, who had already made significant trade concessions to the United States following Trump’s re-election.
Trump and Modi announced they were working on a major bilateral trade deal after Modi paid a friendly visit to Washington in February. Trump also said he wanted India to become one of the few countries outside of the North Atlantic Treaty Organization (NATO) that could purchase the advanced F-35 fighter jet. The two leaders spoke of each other as friends with a “special bond.”
India still wound up with tariffs last Wednesday, but they were considerably lower than the rates announced for most other Asian nations. Further, New Delhi enjoyed a much lower total rate than the 54 percent Trump levied against India’s major regional rival, China.
Beijing responded with anger and immediate retaliatory action to the tariffs, causing Trump to threaten on Monday to raise China’s rate by another 16 percent. All of this is probably music to New Delhi’s ears, even though Indian exporters remain worried about their own tariffs.
NDTV saw “panic” and “gloom” in India’s equity markets over the weekend. But there was also optimism about a “surprise upside” thanks to the even higher rates Trump slapped on competitors like China, Vietnam, and Indonesia.
The bilateral agreement India was already negotiating with the Trump administration could provide another significant advantage. NDTV’s sources felt it was a “wise play” for India to refrain from retaliatory action and keep the deal on a fast track. Those sources also felt Indian exporters would be able to find other buyers to ease the pain from U.S. tariffs, and they praised Modi’s economic initiatives for making India’s economy strong enough to weather the trade fluctuations.
“New business models and policies will emerge from this global tariff war. Even during a global disaster like the pandemic, India managed to find opportunities,” said Ranjeet Mehta, CEO of the PHD Chamber of Commerce and Industry (PHDCCI), an Indian non-governmental trade organization.
“India is a very big market of 1.4 billion people. Our consumption is huge. India is still the fastest-growing economy in emerging markets. But we must look at new opportunities and create new models. We must create a new ecosystem that will help us make our products more innovative and useful,” Mehta urged.
The Federation of Indian Export Organizations, a body established by the Indian government in 1965, estimated that Trump’s tariffs could create $50 billion in opportunities for Indian export companies over the next two to three years. Garment manufacturers seem especially well positioned to benefit from high tariffs against competitors like China and Bangladesh.
On the other hand, the Reserve Bank of India (RBI) estimated that India’s economic growth could slow by 20 to 40 basis points over the coming year due to the tariffs, possibly leading to more interest rate cuts. The Indian central bank cut interest rates for the first time in five years in February.
India’s economic growth reached a four-year low of 6.5 percent in the last fiscal year, largely due to high inflation and reduced demand from urban areas. The government responded with tax cuts and looser monetary policy to increase demand.
The Economic Times of India recently noted that New Delhi still charges much higher tariffs than Washington on many products, including passenger automobiles, apples, rice, and internet networking equipment, such as switches and routers.
