India should lower tariffs and boost global trade ties

Source: The post India should lower tariffs and boost global trade ties has been created, based on the article “Should India reduce tariffs given the U.S.’s moves?” published in “The Hindu” on 4 April 2025. India should lower tariffs and boost global trade ties.

UPSC Syllabus Topic: GS Paper2-International Relations-Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests.

Context: U.S. President Donald Trump imposed reciprocal tariffs on various countries, including India, causing uncertainty in global trade. In response, India reduced some tariffs and initiated talks for a bilateral trade deal. This article explores whether India should further reduce tariffs and how it should respond to U.S. trade moves.

For detailed information on India’s import tariffs read this article here

Impact of Tariffs on Economic Growth

1. Lower Tariffs Promote Efficiency: Economists agree that lower tariffs reduce consumer prices and push domestic industries to become more efficient. For example, if a car costs ₹5 lakh but a 20% tariff raises its price to ₹6 lakh, the consumer pays more, while the inefficient local producer gains.
2. Uniform Tariff Rates Are Better: It is better to have a single or very few tariff rates. Multiple and uneven rates distort decision-making in businesses and reduce overall efficiency in the economy.
3. Example from India: High tariffs in India have protected inefficient producers. Economists argue that if an Indian product, like a car, cannot compete without tariff protection, it should not be produced under such a system.
4. Effect on Global Trade: Tariffs disrupt global supply chains. They lower efficiency and slow down overall economic activity by increasing costs across countries.

Purpose and Effectiveness of Trump’s Tariffs

1. Reason for the Tariffs: The main goal was to pressure countries to lower their trade barriers. Trump’s administration believed this was necessary to fix trade imbalances and boost U.S. manufacturing.
2. Effectiveness in Question: The strategy led some countries to negotiate. But it also created uncertainty in global trade. Economists noted that this approach was likely chosen because the WTO system has become slow and ineffective.
3. Long-Term Impact Is Unclear: While the tariffs forced some changes, they also damaged global trade relations. The overall strategy lacked clear goals and may not bring lasting results.

Non-Tariff Barriers – A Bigger Concern

1. Difficult to Identify: Non-tariff barriers (NTBs) like safety rules and quality standards are hard to measure. For example, Europe’s strict sanitary standards on grapes can indirectly act as trade barriers.
2. Used Widely: Almost every country, including India, uses NTBs. These affect nearly all sectors and are often not visible like tariffs.
3. Harmful to Trade: NTBs raise compliance costs, delay entry into markets, and are more restrictive than tariffs in some cases.
4. Complex Regulations: They often involve lengthy procedures and vary between countries, making trade difficult, especially for small exporters.

Best Path for India’s Trade Policy

1. Reduce Tariffs Gradually: India should lower tariffs step by step. Example: Yashwant Sinha’s reforms in the 1990s reduced peak tariffs annually and helped attract investment.
2. Address Non-Tariff Barriers: India should simplify standards and remove hidden restrictions that protect local firms unfairly.
3. Negotiate Free Trade Agreements: India should sign FTAs with key economies like the U.S., EU, UK, and Japan. This would open markets and improve global competitiveness.
4. Ensure Policy Predictability: Announcing tariff cuts in advance will help industries plan better and invest with confidence.

Conclusion:

India must shift from protection to efficiency. Gradual liberalisation, tackling non-tariff barriers, and stronger trade partnerships can make India more competitive and better integrated into the global economy.

Question for practice:

Discuss how India can respond effectively to U.S. trade moves like tariffs to strengthen its global trade position.