The US President Trump has announced reciprocal tariffs. However, it is available with a rider of a 90-day pause for most of the economies except China and a few other retaliatory economies. This has created chaos in the whole world in general and the security markets in particular. Now, the US has the highest average import tariffs since 1938, when its tariffs peaked at 15.5%, which started falling once the Second World War started in 1939. Post implementation of reciprocal tariffs, the average import tariff rate would be 14.5% in comparison to 2.4% in 2024.
It should be noted that globalisation and free trade were the brainchildren of the USA, which were implemented across the globe through the UNO, IMF, World Bank, WTO (erstwhile GATT) and other multilateral agencies and negotiations to achieve the economic goals of the developed economies in general and the USA in particular. The US used these two concepts and these agencies to turn the US dollar into the reserve currency of the world, eventually replacing gold.
The world is very upset as the economic policy uncertainty has risen beyond anyone’s imaginations. It is at the highest in the last 30 years. It is resulting in increased volatility (VIX index) in the security markets and creating huge opportunities for speculators which would eventually further add to the volatility!
The US is very aggressive against China however, it is the USA that created China! In its 9th April announcements, the US has extended some relief by pausing the tariffs’ implementation by 90 days. However, the naysayers are asking questions. Will these reciprocatory tariffs target only Chinese imports aggressively, or imports from other countries will also take a pinch of salt (through reciprocal tariffs) post the so-called 90-day pause? It must be noted that every country attracts about 10% of the tariff!
There are many fundamental questions which need to be asked. Now, when the US has deserted the movement of globalisation and free trade, what will happen to the globalisation movement? Will WTO remain effective in future, as WTO has gone completely silent in this matter? Or are we moving to a new era which includes globalisation of convenience (friendshoring and nearshoring) and the USA accepting that it is neither 'Big Brother' nor 'Inspector of the World', ushering completely uncharted path of diplomacy and perhaps diplomatic chaos!
Trump's announcement and implementation of the reciprocal tariffs have changed and will continue to upset the global tariff regimes in the coming days. Other economies will also follow suit.
The time has come for India must prepare her economy for higher tariffs for her exports as India grows in the future and in the changed global economic scenario, lower differential tariffs wouldn't be available for longer! So, it's imperative for India to raise its bar rather than to expect concessions.
This situation has brought the World Trade Organisation (WTO) under huge pressure! World Trade Organisation (WTO) rules give developing countries the benefits of differentiated tariff rates, where exports from developing countries are taxed at a lower rate than those from developed countries! As a result of this push, there is a natural gap in the tariffs of developing and developed countries!
However, everyone is asking whether the WTO is capable of taking cognisance of Trump's reciprocal tariffs and acting against the US?
Everyone knows the answer!
Dr Rajeev K Upadhyay
No comments:
Post a Comment