A ‘zero-for-zero’ tariff approach is being touted as the best way for India to deal with US President Donald Trump’s proposed reciprocal tariffs. Mint explains what this initiative is and why some consider it to be a better option than a bilateral trade agreement.
What are ’zero-for-zero’ tariffs?
This is an approach that has been suggested for India to effectively deal with the reciprocal tariffs that the US has threatened. It involves India identifying specific tariff lines or product categories and eliminating import duties on them. In response, the US can eliminate tariffs on a comparable number of goods. This way India’s high average tariff, a point US President Donald Trump has repeatedly talked about, would reduce sharply. And if reciprocal tariffs are still applied, the impact will either be low or close to zero for India. Experts argue that zero-for-zero is better than signing a bilateral trade agreement.
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How could it be better than a trade deal?
Any bilateral trade agreement will take time to be negotiated, and it is unlikely to thwart the reciprocal tariffs that the US government has threatened to levy. Global Trade Research Initiative, a think tank that mooted the concept of a ‘zero-for-zero’ tariff approach, has said that a bilateral trade agreement will also force India to deal with issues such as opening up its protected agriculture sector for which it is not ready. Farming employs millions of poor in India. On the other hand, a zero-for-zero deal can be struck quickly, avoiding contentious issues. If the US agrees, a deal can be signed before reciprocal tariffs come into effect.
When do the reciprocal tariffs take effect?
From 2 April, says Trump. The offices of the US Commerce Secretary and US Trade Representative are in the process of reviewing partner countries’ trade policies to recommend higher tariffs as per the Reciprocal Tariff Plan introduced by the US president on 13 February. The plan allows the US to raise tariffs on countries with which the US has a trade deficit.
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How will they impact India?
If the reciprocal tariffs are imposed uniformly on all imports, experts said that Indian exports will see additional tariffs of 4.9% from the current levels of 2.9%. If they are applied sectorally, areas such as agriculture, pharmaceuticals, diamonds, jewellery and electronics will be impacted significantly. If they are imposed on product lines, the impact will be limited as India and the US do not trade in the same products. Whichever way, there will be some impact as India’s tariffs on imports are higher than those of the US.
So why is the textile industry excited?
Trump’s 20% tariff on Chinese imports, imposed in two stages, has made Indian textile exports competitive vis-à-vis China. In addition, China retaliated by imposing a 15% duty on American cotton. This will add to the cost of Chinese textile players. If and when the 25% tariff imposed on Mexico comes into effect, India will become a sought-after destination for sourcing textile products. What can spoil the party is reciprocal tariffs—that’s why the Indian textiles sector is all for zero-for-zero tariffs.
Also read | Tariffs should be tapered off after building globally competitive domestic businesses: Niti Aayog member
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