Context: Trade wars that were launched by the US led by President Donald Trump have created economic disruptions at the global level.

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Tariff Imposition and Retaliatory Actions

Chinese imports were tariffs by the US at 10%, including a 25% surcharge on Mexican and Canadian goods.

Retaliatory Measures

• Tariffs ranged from 10 percent to 15 percent that were imposed by the Chinese government on the main US farm products, which consist of soybeans, pork, dairy, and so forth.
• Steel and aluminum were tariffed: Global tariffs of 25% on steel and aluminum were levied by Trump effective March 12.
• Reciprocal Tariffs Policy: The US plans to impose a reciprocal import tax on exports, which is estimated to disturb the world trade of $3.3 trillion (imports) and $2.1 trillion (exports) in 2024.

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Global Impacts of the US Trade War

A few of the significant impacts of the US trade war are:

• Supply Chain Disruptions: Import-reliant nations like those which are reliant on Chinese or American imports will lose money and take longer to produce.
• Inflation: Tariffs imposed in a manner that weighs heavily on necessities will drive prices up globally, resulting in a negative impact on economies across the board.
• Capital Flight from Emerging Markets: Increased inflation in the U.S. will compel the Fed to hike the interest rate, resulting in capital flight from emerging economies like India.
• Trade Realignments: Brazil and Argentina could gain with China abandoning U.S. farm imports.
• Slower Global Growth: Trade measures undermine investor sentiment, decelerating economic expansion globally.
• WTO Tensions: Increased unilateral tariffs undermine multilateral trade arrangements, boosting quarrels at the World Trade Organization.

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How can India's Economy be Affected by the US Trade War?

Impact of the US trade war on the Indian economy are as follows:

• Export Issues: Indian seafood and basmati rice exports could suffer retaliation through US tariffs.
• Rupee Humbling: The devaluation of Rupee will follow the outflow of investments driven by rising US interest rates.
• Inflation Risks: Upsets in global supply chains would assist in elevating commodity prices in India.
• Steel & Aluminum Impact: US tariffs may cause India's metal exports to be impacted.
• Strategic Positioning: India has to balance safeguarding its home industries without closing itself to international trade.

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India’s Strategy in Response to the Trade War

India can pursue the following strategies as a response to the trade war of the US:

• Opportunities in Trade: India can diversify its agricultural exports to China in retaliation for China's shift in US imports, opening the doors for India.
• Not to Get Protectionist: Rather than turning inward, India can bind itself more with the various nations of the world.
• Diversifying Markets for Import: Indian companies must now turn their eyes elsewhere in the world beyond China and the US while sourcing.
• Strengthening Trade Diplomacy: Based on this, diplomatic talks could prevent retaliatory tariffs imposed by the US.
• Encourage Competitiveness: Gear Indian industries towards competition rather than protectionist policies.

All these enable India to position itself as a credible trading partner during shifting global supply chains.

Read the article on India's Relations with Neighbouring Countries!

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UPSC Practise Question

Examine the key aspects of the US-led trade war and its potential consequences for the global economy. What steps should India take to mitigate potential losses? (Ink in 150 words)