Donald Trump’s tariff drama has moved on to the second act. The president of the United States of America has now announced a 90-day pause on all retaliatory tariffs, barring those imposed on China. The 10% baseline tariff on almost all other nations of the world remains in place. The US has signalled this interval to be an open house for deal-making. Indeed, the subtext of Mr Trump’s announcement appears to be that in the absence of countries approaching the US for a deal in favour of that country, Mr Trump’s administration may slap retaliatory tariffs, once again, on its trading partners. From the point of view of the US’s allies, including India, it is imperative that they rework their trade strategies in a fundamental way during this interregnum. There are many factors to be considered in this exercise; but three broad criteria should be prioritised for strategic calculations. The first relates to estimating what could be the possible options left open to the US. Nothing should be considered impossible in this context. Hence, for India, the best strategy would be to fathom the worst-case situation and be prepared for it as much as possible. This exercise has to include a calculation of the costs that the US economy would have to bear for every tariff the country imposes. Knowing the opposition’s costs is an important chip on the bargaining table.
The second, interrelated aspect would be to work out the best options available to New Delhi. India will have to be extremely careful about the impact of the tariffs on major exports like pharmaceuticals as well as about the likely possibility that the international conversation on tariffs will extend to services like information technology-enabled services. On these issues, alternative scenarios need to be fleshed out. There is also the possibility that non-trade issues could be put on the negotiation table as well. For India, its position on issues like immigration restrictions, job market opportunities and the much-talked-about impending trade deal with the US, to be effective from 2030, needs to be clearly worked out.
The third aspect is closely related to the first two. It pertains to keeping India’s diplomatic eyes and ears open for conversation opportunities with the nation’s other trading partners. If global trade is indeed to be reset, the European Union, Japan, South Korea, United Kingdom, Vietnam and even China will have to change their strategies as well. This represents a large basket of potential opportunities for India’s trade in the near future. The future path is all about estimating the benefits and the costs of the alternative state of affairs. These three aspects represent the vital parts of an integral trade-tariff strategy. A ninety-day period is a good enough window to get the homework done.