Former RBI governor Raghuram Rajan on Thursday criticised the Trump administration’s decision to impose reciprocal tariffs on about 60 countries, calling it a “self-goal.” In an interview with PTI, he explained that while the move would hurt the US economy the most, its impact on India would be limited.
"Let us recognise that in the short run, this will adversely affect the US economy first and foremost, it is a self-goal as footballers would say. Coming to the effects on other countries, the direct effect of any tariff on India's exports will be to raise prices for US consumers, reducing their demand, and hence Indian growth," he told PTI.
US President Donald Trump announced new ad-valorem duties ranging from 10% to 50% on imports from all trading partners. The baseline 10% tariff will start on April 5, with the 27% duty coming into effect on April 9. Some sectors like pharmaceuticals, semiconductors, and energy products are exempted.
Rajan explained that these tariffs would increase prices for US consumers, reducing their demand and slowing down India’s exports. However, since the US has also applied tariffs on other countries, India might not be hit as hard.
"Of course, to the extent that the US has applied tariffs on other countries also, and India is competing with producers from those countries, the overall effect will be smaller than if the tariffs had been applied only on India, since US consumers will not be able to substitute away to non-tariffed producers," the eminent economist noted.
He said that Trump’s long-term goal is to boost US production, but even if successful, it would take a long time to achieve. Meanwhile, India's reduced exports could lead to more goods being available domestically, making the tariffs disinflationary. Countries like China may also try to export more to India since their access to the US market is now restricted.
Can India turn this into an opportunity?
Asked whether India can turn this crisis into an opportunity, Rajan said, "We can certainly bring down the tariffs we have been raising, that would be beneficial to India, regardless of whether it helps us negotiate lower US tariffs."
He said that more generally, India needs to understand the world has become much more protectionist, so "we have to be more clever about trade".
For example, Rajan said, looking east toward the ASEAN and Japan, looking southwest to Africa, and looking northwest to Europe all make sense.
While noting that working out a more equitable relationship with China should be a priority, he said, "equally, let us build stronger bridges within SAARC, our neighbours".
"That means overcoming political differences. As the world breaks up into regional blocks, South Asia should not be the odd region out," he said.
Trump justifies Tariffs
President Trump described the move as a historic step to counter high duties imposed on American goods worldwide.
“This is Liberation Day, a long-awaited moment. April 2, 2025, will forever be remembered as the day American industry was reborn,” Trump said in a speech at the White House.
He held up a chart listing tariffs imposed by countries like India, China, the UK, and the European Union. According to him, while the US charges only a 2.4% tariff on motorcycles, Thailand imposes 60%, India 70%, and Vietnam 75%.
Inputs from PTI
"Let us recognise that in the short run, this will adversely affect the US economy first and foremost, it is a self-goal as footballers would say. Coming to the effects on other countries, the direct effect of any tariff on India's exports will be to raise prices for US consumers, reducing their demand, and hence Indian growth," he told PTI.
US President Donald Trump announced new ad-valorem duties ranging from 10% to 50% on imports from all trading partners. The baseline 10% tariff will start on April 5, with the 27% duty coming into effect on April 9. Some sectors like pharmaceuticals, semiconductors, and energy products are exempted.
Rajan explained that these tariffs would increase prices for US consumers, reducing their demand and slowing down India’s exports. However, since the US has also applied tariffs on other countries, India might not be hit as hard.
"Of course, to the extent that the US has applied tariffs on other countries also, and India is competing with producers from those countries, the overall effect will be smaller than if the tariffs had been applied only on India, since US consumers will not be able to substitute away to non-tariffed producers," the eminent economist noted.
He said that Trump’s long-term goal is to boost US production, but even if successful, it would take a long time to achieve. Meanwhile, India's reduced exports could lead to more goods being available domestically, making the tariffs disinflationary. Countries like China may also try to export more to India since their access to the US market is now restricted.
Can India turn this into an opportunity?
Asked whether India can turn this crisis into an opportunity, Rajan said, "We can certainly bring down the tariffs we have been raising, that would be beneficial to India, regardless of whether it helps us negotiate lower US tariffs."
He said that more generally, India needs to understand the world has become much more protectionist, so "we have to be more clever about trade".
For example, Rajan said, looking east toward the ASEAN and Japan, looking southwest to Africa, and looking northwest to Europe all make sense.
While noting that working out a more equitable relationship with China should be a priority, he said, "equally, let us build stronger bridges within SAARC, our neighbours".
"That means overcoming political differences. As the world breaks up into regional blocks, South Asia should not be the odd region out," he said.
Trump justifies Tariffs
President Trump described the move as a historic step to counter high duties imposed on American goods worldwide.
“This is Liberation Day, a long-awaited moment. April 2, 2025, will forever be remembered as the day American industry was reborn,” Trump said in a speech at the White House.
He held up a chart listing tariffs imposed by countries like India, China, the UK, and the European Union. According to him, while the US charges only a 2.4% tariff on motorcycles, Thailand imposes 60%, India 70%, and Vietnam 75%.
Inputs from PTI
You may also like
EU to impose major penalties on Elon Musk's X for violating disinformation law
PM Modi, Bangladesh's Muhammad Yunus hold first talks since Sheikh Hasina fled Dhaka
AI in Higher Education: How AI is shaping the future of students, know why it is important for the changing market..
Aamir Khan mourns Manoj Kumar's death, recalls learning from watching his films
AI-Generated Clip Passed Off as Real Visuals of Scuba Divers Exploring Ram Setu
