Answer

The resurgence of tariff wars, especially led by the U.S. after the announcement of Tariff Liberation Day, has triggered a global shift toward protectionism. India, too, maintains one of the highest average tariff rates globally, primarily to safeguard domestic industries. However, such policies have complex implications for export competitiveness and trade balance.

Positive impacts of protectionist policies on India’s export competitiveness and trade balance

• Nurturing Infant Industries: Temporary tariffs shield nascent sectors from unfair foreign competition.
  For example: Electronics and smartphone manufacturing received tariff support under Make in India and PLI schemes, increasing India’s mobile phone exports jumped nearly 50% in the first ten months)of this fiscal year (FY 2024) as compared to the same period last year.
• Encouraging Domestic Value Addition: Import duties on finished goods incentivize local manufacturing and backward linkages.
  For example: Tariffs on toy imports (>60%) helped domestic units grow by 95% between 2020–2024 (Ministry of Commerce).
• Boost to Local Supply Chains: Reducing import dependence helps create a resilient domestic ecosystem for export.
  For example: Auto components and pharmaceuticals have shown improved export performance due to import substitution of APIs and sub-assemblies.
• Leveraging PLI-linked Protectionism: Tariff protection combined with performance-based Production Linked Incentive (PLI) schemes boosts scale and quality for global exports.
  For example: India exported over ₹5 lakh crore worth of PLI-backed goods in FY 24-25 (DPIIT, April 2025).
• Promotes Strategic Sector Sovereignty: Helps build long-term capabilities in critical sectors (defence, electronics, solar), enhancing competitiveness.
• Better Terms of Trade: Higher export volumes of value-added goods, reduced low-quality imports improve net terms.
  For example: India’s net trade in electronics moved into surplus for sub-segments like mobile assembly.

Negative impacts of protectionist policies on India’s export competitiveness and trade balance

• Reduced Access to Competitive Inputs: High tariffs on intermediate goods (e.g., semiconductors, machinery) raise input costs.
  For example: Tariffs on smartphone components increased production costs, reducing India’s edge  against Vietnam.
• Retaliation by Trading Partners: Tariff hikes provoke reciprocal duties, hurting Indian exports.
  For example: US retaliated with higher tariffs, India’s steel export to US in 2018 fell down by 49%.
• Deterrent to FDI in Export-led Sectors: Policy unpredictability discourages global investors seeking open markets.
  For example: EU and Japan have expressed concern over India’s high tariffs at WTO.
• Reduced Integration into Global Value Chains (GVCs): Protectionism isolates India from GVCs where intermediate goods move freely.
  For example:India’s share in global GVC participation is ~40% is considerably low in comparison to major economies such as the United States, China, and Japan.
• Domestic Inflation and Reduced Competitiveness: Tariffs increase prices of consumer and capital goods.
  For example: Tariff-led inflation on electronics and food erodes export price advantage.

Ways in which India can foster export competitiveness and trade balance

• Adopt a Calibrated Tariff Strategy: Avoid across-the-board tariff hikes; selectively protect strategic sectors while keeping input tariffs low for export-oriented industries.
• Promote Competitive Manufacturing through PLI & MSME Support: Expand PLI schemes to labour-intensive sectors and facilitate MSME integration into global value chains.
• Strengthen Trade Infrastructure and Logistics Efficiency: Fully implement the National Logistics Policy and PM Gati Shakti to reduce export logistics costs (currently 13–14% of GDP against global average of 8%).
• Accelerate Strategic FTAs and Market Diversification: Conclude key FTAs (e.g., UK, EU, EFTA) with built-in safeguards. Diversify export markets to reduce dependency on US-China trade dynamics.
• Invest in Quality & Standards Upgradation: Create a single-window compliance portal for global certifications (CE, ISO, FDA) and upgrade testing labs under PPP mode.
• Boost Services and High-Tech Exports: Promote IT, fintech, biotech, and space sectors, where India already holds a competitive edge.
• Implement Smart Import Substitution: Support domestic alternatives where scale and cost allow (e.g., electronics, defence), while maintaining access to essential raw materials.
• Build Regional Trade Corridors: Develop export clusters linked with ports, and enhance regional trade via platforms like BIMSTEC, IPEF, and IMEC.

While protectionism may provide short-term relief, it hampers India’s long-term export competitiveness and resource efficiency. Establishing a Trade Strategy Cell under the Commerce Ministry to monitor global tariff trends and guide timely responses, alongside calibrated liberalisation and domestic reforms, is key to achieving a favourable trade balance and global economic standing.

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