The trump tariffs would finally take effect from midnight today. The speculation about them being somehow averted, of them being bargaining chips or even being non serious bombasts of a loud mouth megalomaniac, have all been put to rest.
This would definitely have huge economic and trade impact, but they would manifest only in due course, the immediate effect has been the huge embarrassment that the government and its supporters have suffered.
For much of the last decade, the single biggest success sold to the public was the Vishwa guru status of prime minister modi and his personal equation with global leaders especially president trump.
The story of India’s global acknowledgment, for the first time since independence, has now been shattered.
Sectors like cotton, textiles, steel are already facing the effects. Even the 25% tariffs are crippling for them. Gems and jewelry are also severely affected. The penal doubling of the tariffs would make these critical export sectors further vulnerable.
The efforts to undo these by courting Russia and China may not help. Russia with a two trillion dollar economy, is not capable of absorbing much of our exports and China has such a huge commodity base that we are in no position to export any thing to them.
The real story that would unfold though is oil. We have been exporting huge amounts of refined oil, almost a billion barrels last year. This is primarily Russian oil. 50% tariffs would negate the price advantage meaning uncompetitive trade position.
Further dependence on Russian oil may increase, if dollar inflows reduce due to poor exports, as only Russia would supply oil on non dollar payment. Even relations with Iran are no longer as warm, and it is unlikely to extend non dollar deals like before. This could become a catch 22 situation, damned if you take Russian oil and damned if you don’t.
The way out is not easy. Improving your democratic credentials, coming out of cronyism, this was exactly what US blamed us for, buying Russian oil on the pretext of energy security for the poor masses and not passing a penny to the people. Instead corporate made windfall profits of 16 billion dollars last year. This would help restore international reputation and put pressure on the US administration.
