Channel Partners Speak on Trump's 26% Tariff on Indian Products

It's a hotly debated news that Donald Trump has imposed 26% tariff on Indian exports to the US.

The Indian PM Narendra Mdi chooses to reman silent, when other countries are strongly fighting the tariff drive of Trump, Canada taking the lead by announcing that they'd block US imports, cut off electric supply to the US and the Canadian businessmen refusing to sell American products.

When we talk to the Indian business community, we understand why Narendra Modi chooses to remain quiet. It's because majority of Indian buisness leaders, especially from the IT sector, have chosen to wait and watch, or even be sympathetic or not be worried about Trump and look for goodness in this measure.

It's common knowledge that the business community forms the largest vote bank of Narendra Modi and they are also his strongest supporters. Hence, keeping his electoral dynamics in mind, Modi remains quiet.

IT Partner Community Speaks

We talked to the IT partners community. They have been vocal in not opposing the tariff measure, as seen from the following comments, although some of them want to follow the wait and watch policy -

Best way to tame Trump and his cronies is to start taxing their services exports and specifically their digital services like Facebook, Apple, YouTube , MS, Google and other Apps at the rate of their auto tarrifs or 26% proposed for India.
Of course, India should not be part of it to protect our IT services exports.

--Baldev Singh, CEO, Web Infocom Services 

Countries like India where domestic consumption is major contributor to economy, may not worry. However, for countries like China where the exports contribute majorly towards GDP is cause of worry. Trump has triggered the initiative to make in one's own country, which is good for India with huge population to employ. 

--Saket Kapur, Former Gen Sec, PCAIT

Refurbished laptops share in the market will increase.

--Arun Dey, GB Member, FAIITA

When the necessity arises, whatever tariff is imposed people will buy without any hesitation. 

--CP Praveen, Managing Partner, Vasavi Computer Academy, Vellore

Opportunity in challenge is what I feel. Let us see how things move on the ground Globally.
My presumption is a roll back soon by US notwithstanding that the present tarriffs may boost make and consume Indian products.

--Puneet Singhl, President, CMDA Delhi

Trump implemented tariff barriers to incentivise companies to establish manufacturing facilities in the United States if they wish to sell their products in the US market. These facilities will create more job opportunities for American workers while decreasing the nation's reliance on foreign countries. This strategic move is aimed at achieving long-term goals of economic self-sufficiency and reducing dependence on external sources. 

--Manoj khanna, Gen Sec, CMDA Delhi

 

Following may happen - 

1. Dollar will weaken
2. Cheaper oil for India, negating 1% loss of GDP
3. India will find new markets - which is already happening since 7 years with push on manufacturing and supplies to SEA
4. Far fetched personal belief: we can see a push for spending and thus lesser tax.
5. More relief to industry. With dollar inflow back to India from China, India will have less to worry about currency devaluation to balance relief - remember Pranab Mukherjee budget during 2008 economic carnage and temporary relief that India much needed? The shock thereafter was not due to economic reasons but resource drain to corruption which led to policy paralysis.
6. Once the deals fall in place, Trump's favored trading partners will receive a boost. China may not qualify for that anytime soon under Trump, India will.
7. India may perform little posturing due to elections - IF AT ALL, but I would trust Modi's personal equation with Trump for the US to ignore shadow-boxing. And I have reasons to speculate
8. Think how difficult it could have been with farm subsidy being considered as a part of calculation of tariff! Remember how they brought capital to knees with their roll-back demands? (not getting into merits of the same)
9. Current tariffs are sweeping based on simple Maths. They would be tweaked and the process could already be in place before a third container ship leaves Indian shores. The US needs both India and China as much as we need the US. India more.
10. China is safer than expected because of Musk's various interests which are slowly being poisoned by China's own BYD and IP theft. What happens when Musk is a little weaker - Trump is already restructuring DOGE with 130 days expiry to his appointment. He will still remain important, but not as powerful as to protect Tesla's China allegiance
11. I have a feeling that India will be compensated with cheaper oil, probably at par with Russia. Or lower. And that deal may have been secured in Feb itself

--Kshitij Kotak, CEO, Fortune Grecells

 

A Different Perspective

However, ther is at least one senior partner leader who has made the efforts to read about this issue from a global context and has presented a more comprehensive view - 

To illustrate just how nonsensically these tariffs were calculated, take the example of Lesotho, one of the poorest countries in Africa with just $2.4 billion in annual GDP, which is being struck with a 50% tariff rate under the Trump plan, the highest rate among all countries on the list.

Why? Does Lesotho apply extortionate tariffs on US products and the US is merely being reciprocal here? Not at all, despite what Trump is saying, it's NOT the way these tariffs are defined.

As a matter of fact Lesotho, as a member of the Southern African Customs Union (SACU), applies the common external tariff structure established by this regional trade bloc.

Which means it applies the same tariffs on U.S. products as South Africa does, as well as the 3 other members of the bloc: Namibia, Eswatini and Botswana.

So since the tariffs charged by these 5 countries on U.S. products are exactly the same, they must all be struck with a 50% tariff rate by the U.S., right? Not at all: South Africa is getting 30%, Namibia 21%, Botswana 37% and Eswatini just 10%, the lowest rate possible among all countries.

So what gives? Again, the way these tariffs are calculated has absolutely zero relationship with actual tariffs imposed by these countries on U.S. products. Instead, they appear to be simply derived from trade deficit calculations.

Looking at Lesotho specifically, every year the U.S.  imports approximately $236 million in goods from Lesotho (primarily diamonds, textiles and apparel) while exporting only about $7 million worth of goods to Lesotho.

Why do they export so little? Again this is an extremely poor country where 56.2% of the population lives with less than $3.65 a day. i.e. $1,300 a year. They simply can't afford U.S. products, no-one is going to buy an iPhone or a Tesla on that sort of income.

The way the tariffs are ACTUALLY calculated appears to be based on a simplistic and economically senseless formula: you take the trade deficit the U.S. has with a country, divide it by that country's exports to the U.S and declare this - falsely - the tariff they charge on the US.

And then as Trump did in his speech last night, you magnanimously declare that you'll only reciprocate by charging half that "tariff" on them.

As such, for Lesotho, the calculation goes like this - (USD 236M - USD 7M)/USD 235M = 97%. That's the tariff Lesotho is deemed to charge on US and half of that, i.e. roughly 50% is what the US reciprocates with.

It's extremely easy to see why this makes no sense at all.

First of all, there's nothing Lesotho can do about it - they can't change tariffs they allegedly charge the US to reduce the tariff rate the US reciprocates with because, again, it's NOT based on any tariff that they charge.

Similarly they can't do much about reducing the trade deficit they have with the US because again, they simply don't have enough money to buy US products.

Also the main rational Trump gave for the tariffs is to get production back to the US, to "bring manufacturing back". 47.3% of Lesotho's exports are diamonds - how do you bring the manufacturing of that back to the US? Anyone can see it makes just about zero sense.

The Lesotho example exposes the fundamental economic incoherence of these tariffs. Rather than addressing actual trade barriers, they punish countries based on trade deficits that arise from structural economic realities. All the more countries like Lesotho which pose zero competitive threat to American industry.

Worse yet, these tariffs will likely make these structural realities even worse - the US is Lesotho's second most important export destination so it's a fair bet that applying 50% tariffs on their products will make people in Lesotho even poorer, and therefore even LESS able to afford US products.

But perhaps the most unfair and detrimental aspect of all this is that these tariffs represent a complete reversal of longstanding US development policy; and therefore a betrayal of countries - like Lesotho - who chose to follow US advice in the past.

For decades the US has used preferential trade access to encourage economic development in the world's poorest nations, recognising that trade, not just aid, could get them out of poverty and ultimately put them in a position where they too could afford iPhones or Tesla.

They're now effectively penalising countries for following previous US policy, a lesson which I bet they won't forget anytime soon.

So all in all the irony is painful - in the name of fighting unfair trade, America has just demonstrated what truly unfair trade looks like.

This isn't something designed to address genuine trade issues, but simply a mechanism based on arbitrary math to punish countries for the affront of selling more to the United States than they buy. 

--Veera Swamy, CEO, Srilakshmi Innovations 

The above discussion explains the enigmatic silence of Narendra Modi on Trump's policy on India. At the same time, it shows that there are at least some partner leaders who hold a different viewpoint.

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