Retaliatory tariffs imposed by the U.S. on India may yield unfavorable outcomes
In the ever-evolving landscape of international trade, several significant developments are unfolding.
The European Union (EU) is reportedly considering a cooperative approach against China on trade restrictions. A likely supporting group for this initiative includes members of the European Commission and European Parliament, who have advocated for stricter export controls and sanctions policies. These advocates have proposed trade restrictions on Chinese companies in new EU sanction packages. However, the EU's ability to agree on such tariffs may be hindered by pro-Kremlin leaderships that could potentially block any such sanctions.
Meanwhile, across the globe, Indian trade negotiators are aiming for a deal that would significantly reduce duties on most manufactured goods and accept US tariffs of approximately 20%. Yet, any concession on agriculture by the Indian government could be exploited by Modi's political opponents.
India's Prime Minister, Narendra Modi, has recently signed a free-trade agreement with the UK and is in the process of negotiating one with the EU. Modi's government has nothing to gain from joining a strategic Eurasian triangle dominated by Chinese technology and capital.
The US, on the other hand, is considering imposing tariffs beyond 50% on Indian manufactured goods. The case for penalizing India is illogical, as India is not a strategic rival to rich economies and would not be for decades. Any protectionist measure against China would be anti-consumer and impractical due to China's control of critical raw materials like rare earths.
The White House is proposing tariffs of up to 100% on China and India, the two biggest buyers of Russian energy, as a means to weaken Russia's war machine in Ukraine. However, a threat of further punishment could backfire, especially if it affects India's agricultural economy, which struggles to balance the interests of farmers and the urban poor.
Japan and the UK are unlikely to jeopardize their interests in Asia by participating in the US trade war. Japanese automakers such as Suzuki Motor Corp and Honda Motor Co have invested in India for years, and financial institutions like Sumitomo Mitsui Financial Group Inc and Mizuho Financial Group Inc are looking to expand there too.
Western politicians should be wary of blocking opportunities for the advancement of 375 million Indians, the world's largest cohort of youth. The danger is that Modi, cornered by domestic political compulsions and US demands, might make a suboptimal choice.
Andy Mukherjee, a Bloomberg Opinion columnist covering industrial companies and financial services in Asia, has previously worked for Reuters, the Straits Times, and Bloomberg News. Beijing has previously used its control of rare earths as a bargaining tool, both in the past and in recent disputes with the US.
A joint front against China might be appealing to some manufacturers in the eurozone due to price competition concerns. However, any such move should consider the potential impact on the urban and rural populations of countries like India, where the brunt of US sanctions would be felt by those in villages, not a permanent, urban proletariat.
As these complex trade dynamics continue to unfold, it is crucial to maintain a balanced approach that considers the economic interests of all parties involved, while also ensuring fairness and sustainability for the global community.
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