Tariff reduced from 12.5% ​​to 10%: Know what a big opportunity this decision of Trump is for Indian business.

The Donald Trump administration has recently reduced the additional tariff on most goods going from India to America from 12.5% ​​to 10%. This big decision will provide a lot of relief to the exporters of the country and India can get a big lead in global trade compared to many competing countries of the world. However, despite this, the cost of Indian goods in the American market will still remain slightly higher than before.

This new tariff regime has been implemented immediately after the temporary Section 122 duty ended on July 24. The special thing is that this change will apply to about 70% of India’s total US exports. According to reports, India has recently tightened the rules on the import of goods made through forced labour. Apart from this, America has taken the important step of reducing this tariff only after positive talks between New Delhi and Washington on labor standards.

Why was the tariff reduced for India? Know the reason behind this

This entire decision has been taken under America’s Section 301 investigation. Under this special law, America imposes additional duty on goods imported from those countries, which in its view are related to products made with forced labor. When this proposal came out in June this year, India was placed in the group with 12.5% ​​additional tariff.

But according to Indian officials, after fruitful talks with the US on the issue of labor standards and India imposing strict restrictions on the import of products involving forced labour, the US showed leniency and reduced it to 10%. According to the US Trade Representative (USTR), this 10% tariff has been imposed on countries that have either already banned such goods, or have made a firm commitment to do so, or are taking effective steps to stop it. Apart from India, this 10% tariff will be applicable on a total of 16 countries including Bangladesh, Pakistan, Canada and the United Kingdom, while many other countries under investigation are still facing 12.5% ​​duty.

What will be its impact on Indian exporters and different sectors?

This decision will impact different business sectors of the country in different ways. According to Global Trade Research Initiative (GTRI), additional tariff of 25% or 50% will continue to be applicable on steel, aluminium, copper, auto components and some products which already fall under Section 232. It accounts for about 8% of India’s total exports.

Only normal Most Favored Nation (MFN) tariffs will be applicable on some selected products. However, its biggest and positive impact will be on products that make up about 70% of India’s total US exports. These include engineering goods, machinery, chemicals, plastics, leather products, gems and jewellery, furniture and many other manufacturing products. Now Section 301 tariff of 10% will be imposed on these in addition to the normal duty. However, GTRI also pointed out that India has not received the special exemption from tariff-rate quota in textiles and garments that has been given to Bangladesh, Cambodia, Indonesia and Malaysia for exports of products made from US cotton and fibre.

What benefits will Indian businessmen get and what are the challenges?

Trade experts believe that this decision may not provide complete relief to India, but it definitely gives us a strong edge in global competition. According to Manoj Mishra, partner, Grant Thornton Bharat, India has now come into the group with 10% tariff at par with countries like Bangladesh, Sri Lanka, Malaysia, Indonesia and Pakistan. In comparison, the effective tariff on some products from Japan, South Korea, Switzerland, Vietnam, Thailand, Singapore and the European Union still remains at 12.5%. This will give our country’s sectors like engineering goods, auto parts, electronics, specialty chemicals, pharmaceuticals and medical devices a strong position in the global market.

On the other hand, GTRI founder Ajay Srivastava believes that the US did not present any concrete evidence to prove that India ever imported products involving forced labour. He says that this new tariff actually seems to be a part of the Trump administration’s strategy to pursue a comprehensive tariff policy after the removal of temporary Section 122 tariffs. He has also warned that in future, more additional duties may be imposed on industrial products based on the second Section 301 investigation related to Excess Manufacturing Capacity by America. Apart from this, the possibility of imposition of separate country-specific duties on India due to other geopolitical issues like buying oil from Russia cannot be completely ruled out.