Answer

Unilateral tariff measures, imposed without reciprocal agreements, disrupt global trade flows, leading to retaliatory actions and supply chain shifts. The U.S. ‘Liberation Day’ tariffs, aimed at boosting domestic manufacturing, reflect rising protectionism.  

Global Economic Implications of Unilateral Tariff Measures

• Disrupts Global Supply Chains: Unilateral tariffs force companies to shift production, raising costs and disrupting established supply chains, affecting manufacturers and consumers worldwide.
  For example: The US-China trade war led to Apple moving production from China to Vietnam and India, altering electronics supply chains.
• Triggers Retaliatory Tariffs: Affected nations impose counter-tariffs, escalating trade conflicts, reducing market access, and increasing costs for businesses globally.
  For example: After US tariffs on EU steel and aluminum, the EU retaliated with tariffs on American whiskey, motorcycles, and jeans, impacting US exports.
• Slows Global Economic Growth: Higher tariffs reduce trade volumes, lower business investments, and increase inflation, leading to slower GDP growth worldwide.
  For example: The IMF estimated that US-China tariffs reduced global GDP by 0.8% in 2020, hampering economic recovery.
• Shifts Trade Partnerships: Countries affected by tariffs seek alternative markets, realigning global trade networks and benefiting nations offering competitive manufacturing.
  For example: After US tariffs on Chinese goods, Vietnam, India, and Mexico gained from companies relocating manufacturing operations.
• Weakens Multilateral Trade Frameworks: Frequent unilateral tariffs undermine WTO principles, reducing trust in global trade agreements and encouraging protectionism.
  For example: The US withdrawal from the Trans-Pacific Partnership (TPP) weakened collective trade strategies in the Asia-Pacific region.

How India Can Mitigate Associated Risks

• Enhancing Domestic Manufacturing: Improving infrastructure, logistics, and ease of doing business can reduce dependency on volatile global trade policies.
  For example: The Production-Linked Incentive (PLI) scheme for electronics manufacturing attracted investments from Apple, Samsung, and Foxconn, reducing reliance on imports.
• Diversifying Export Markets: Expanding trade with ASEAN, Africa, and Latin America can reduce exposure to tariffs from major economies like the US and China.
  For example: India’s wheat and sugar exports to Indonesia and Brazil increased after trade tensions disrupted traditional suppliers.
• Strengthening Bilateral Trade Agreements: Negotiating preferential trade agreements with countries affected by US tariffs can secure stable market access.
  For example: The India-Australia Economic Cooperation and Trade Agreement (ECTA) lowered duties on Indian textiles and pharmaceuticals, boosting exports.
• Promoting Value-Added Exports: Shifting from raw material exports to finished goods and high-tech products enhances competitiveness and reduces dependency on tariff-sensitive commodities.
  For example: India’s growth in pharmaceutical exports post-COVID was driven by value-added formulations rather than raw bulk drugs.
• Developing Local Supply Chains: Reducing dependency on imports by encouraging local component manufacturing helps counter supply disruptions due to tariff wars.
  For example: The Atmanirbhar Bharat initiative pushed Indian auto manufacturers to develop local battery and semiconductor suppliers, reducing reliance on China.

How India Can Strategically Leverage Emerging Opportunities

• Attracting Diverted Investments: Companies shifting from China and tariff-affected regions can be incentivized to establish manufacturing hubs in India.
  For example: Apple’s contract manufacturers (Foxconn, Pegatron, Wistron) expanded in India after US-China trade tensions, boosting smartphone exports.
• Positioning as a Manufacturing Alternative: India can promote itself as a cost-effective, skilled-labor hub, benefiting from the China +1 strategy adopted by global firms.
  For example: Vietnam and India gained from US firms relocating garment and footwear production post-China tariffs.
• Boosting Free Trade Agreements (FTAs): Strengthening regional trade partnerships with tariff-affected nations helps expand India’s export footprint.
  For example: The India-UAE CEPA agreement led to 35% growth in Indian jewelry and textiles exports to the Middle East.
• Developing High-Tech Sectors: Investing in semiconductors, electronics, and AI-driven industries enhances India’s global export competitiveness.
  For example: The Indian Semiconductor Mission aims to develop chip fabrication units, reducing import dependency.
• Strengthening Trade Facilitation Policies: Reducing bureaucratic hurdles, customs delays, and logistics costs enhances India’s trade competitiveness.
  For example: The implementation of faceless e-assessment for customs clearance reduced processing times for export shipments.

A balanced trade strategy is India’s key to navigating the disruptions caused by unilateral tariff measures. Strengthening export diversification and enhancing domestic manufacturing through initiatives like PLI schemes can mitigate risks. As Keynes aptly noted, “The difficulty lies not so much in developing new ideas as in escaping from old ones.” India must proactively embrace supply chain realignments and deepen regional partnerships to emerge as a resilient global trade player.

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