India is preparing to impose retaliatory tariffs on specific goods imported from the United States in response to the Trump administration's continued levies on steel and aluminum. This move, marking India's first counteraction during Donald Trump's second term, has the potential to complicate ongoing trade negotiations between the two nations.
The decision to consider retaliatory tariffs stems from the U.S.'s imposition of 25% levies on steel and aluminum imports in March, an extension of duties initially implemented in 2018. India, the world's second-largest producer of crude steel, views these measures as "safeguard measures" that harm its exports, impacting approximately $7.6 billion worth of India-made products imported into the U.S.
In a document submitted to the World Trade Organization (WTO) on May 12, India outlined its plan to suspend concessions and increase tariffs on select American products. While the document did not specify which products would be targeted, it signaled India's intent to leverage global trade rules to advocate for fairer treatment of its exports. India estimates the U.S. measures impact $7.6 billion worth of its aluminium, steel, and derivative exports, causing losses amounting to $1.91 billion in additional duties.
This action mirrors similar responses from other countries, including the European Union and Canada, which imposed retaliatory duties on U.S. goods following the initial steel and aluminum tariffs in 2018. India argues that the U.S. measures are inconsistent with the General Agreement on Tariffs and Trade (GATT) 1994 and the WTO Agreement on Safeguards.
The timing of India's proposed tariffs is particularly noteworthy, as New Delhi and Washington are reportedly close to finalizing a new trade agreement. India has offered to reduce its tariff gap with the U.S. by nearly two-thirds in an effort to clinch a deal. Commerce and Industry Minister Piyush Goyal will lead a team of senior Indian officials to Washington starting May 17 for discussions with their U.S. counterparts on the proposed bilateral trade agreement (BTA). During the visit, Mr. Goyal will hold meetings with U.S. Trade Representative (USTR) Jamieson Greer and U.S. Commerce Secretary Howard Lutnick on the agreement. The main issues that will figure in the negotiations include market access, rules of origin, and non-tariff barriers. India's proposal to impose retaliatory duties on certain U.S. products over American tariffs on steel and aluminium would also figure in the BTA deliberations.
However, India has some of the world's highest tariffs on imports, and Trump has previously called India a "tariff abuser". India has also levied tariffs of its own on steel. Last month, it imposed 12% temporary tariffs to curb imports of cheap steel, primarily from China.
Despite the progress in trade talks, the imposition of retaliatory tariffs could introduce friction into the relationship. The Global Trade Research Initiative (GTRI) suggests that India's plan could "cast a shadow" on the ongoing negotiations. The issue might be resolved if the U.S. agrees to hold consultations with India or withdraws the tariffs. Otherwise, India is likely to proceed with its retaliatory measures, potentially impacting U.S. exporters and escalating trade tensions.
India's decision to consider retaliatory tariffs reflects its commitment to protecting its domestic industries and ensuring fair trade practices. While the move could pose challenges to the ongoing trade negotiations, it also underscores India's willingness to assert its rights within the framework of the WTO. The coming weeks will be crucial in determining whether India and the U.S. can navigate these trade tensions and forge a mutually beneficial trade agreement.
