Answer

Tariffs, traditionally used to regulate trade and protect domestic industries, have evolved into powerful tools of strategic influence. The United States, under various administrations, has leveraged tariffs to achieve geopolitical objectives, impacting global supply chains and trade relations. This is particularly evident in its trade policies towards China and their ripple effects on economies like India, highlighting the strategic dimensions of tariffs.

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Tariffs as Instruments of Strategic Power with Reference to US Trade Policies

• Foreign Policy Tool: Tariffs serve beyond economic protectionism by influencing foreign policy decisions.
  For example: Scott Bessent, US’s Treasury Secretary nominee, emphasized using tariffs to secure cooperation on issues like defense spending and illegal immigration.
• Negotiation Leverage: They act as leverage in international negotiations, pressuring nations to align with US policies.
  For example: The US proposed Mexico with 25% tariffs to curb cross-border drug and migrant flows, leading Mexico to negotiate rather than confront.
• Unfair Practices Deterrent: Tariffs deter economic practices perceived as unfair, such as currency manipulation or intellectual property theft.
  For example: The US imposed tariffs on China citing unfair trade practices and intellectual property concerns.
• Alliance Building: By targeting specific nations or sectors, tariffs help shape global economic alliances.
  For example: US’s proposal for a ‘fair-trade block’ aligns tariffs among allies with shared security interests.
• National Security: They are tools for ensuring national security by reducing dependence on rival nations for critical imports.
  For example: Bessent linked tariffs to industrial policy by promoting domestic production and reducing reliance on China.

Negative Implications of US Trade Policies on India

• Export Competitiveness: Higher tariffs on Indian exports may reduce competitiveness in the US market.
  For example: During Trump’s first term, India faced increased tariffs on steel and aluminum exports, impacting these industries.
• Trade Deficit: Tariffs could widen India’s trade deficit with the US, affecting economic balance.
  For example: The US withdrew India’s GSP (Generalized System of Preferences) status, leading to a loss of duty-free benefits on $5.6 billion worth of Indian exports.
• Supply Chain Disruption: Tariff-induced global trade tensions can disrupt supply chains critical to Indian industries.
  For example: Tariffs on Chinese goods raised costs for Indian firms relying on Chinese components for manufacturing.
• Export Demand Impact: Reduced global trade flow may lower demand for Indian exports, affecting economic growth.
  For example: The US-China trade war created uncertainty in global markets, impacting India’s export performance.
• Policy Pressure: Strategic tariff use could pressure India to compromise on critical domestic policies.
  For example: The US has pushed India to reduce agricultural subsidies to allow greater market access for American farm products.

Positive Implications of US Trade Policies on India

• Market Opportunities: Targeted tariffs on China could create opportunities for India to capture US market share.
  For example: The US imposed 25% tariffs on Chinese goods, encouraging American companies to source alternatives from India.
• Geopolitical Alignment: India could strengthen its geopolitical partnership with the US by aligning trade policies.
  For example: India and the US collaborated on defense and technology under the Quad framework, enhancing bilateral relations.
• Domestic Industry Growth: Strategic tariff alignments can promote domestic industrial growth and reduce trade imbalances.
  For example: India’s Make in India initiative can benefit from the redirection of supply chains due to US-China tensions.
• New Export Sectors: Tariff negotiations could open new sectors for Indian exports to the US.
  For example: India expanded pharmaceutical and IT services exports to the US during trade negotiations.
• Technology Access: Strengthened Indo-US trade relations may provide India access to advanced technologies.
  For example: The US-India defense deals included technology transfers in critical areas like aerospace and cybersecurity.

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Way Ahead for India

• Balanced Trade Approach: India should adopt a balanced approach, emphasizing reciprocity in trade deals with the US.
  For example: External Affairs Minister S. Jaishankar emphasized mutually beneficial terms in Indo-US engagements.
• Market Diversification: Diversifying export markets can reduce dependency on the US, mitigating risks of tariff escalations.
  For example: India has actively pursued trade agreements with the EU and Australia to expand market access.
• Domestic Industry Boost: Strengthening domestic industries to compete globally should be a priority.
  For example: The Production Linked Incentive (PLI) scheme aims to boost manufacturing in sectors like electronics and pharmaceuticals.
• Active Negotiations: India must actively engage in bilateral negotiations to secure favorable terms under new US policies.
  For example: India resolved trade disputes with the US in areas like poultry and agricultural products during Trump’s first term.
• Global Trade Blocs: Aligning with global trade blocs that complement India’s economic and security interests will enhance its bargaining power.
  For example: India’s membership in IPEF (Indo-Pacific Economic Framework) can bolster its trade ties with the US and allied nations.

While tariffs serve as strategic levers in international trade, their misuse can disrupt global economic stability. To mitigate adverse impacts, India and the U.S. must engage in constructive dialogue, emphasizing mutual benefits through trade diplomacy. Strengthening multilateral institutions and promoting economic cooperation will ensure balanced power dynamics and promote a rules-based international order.

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