Washingtons high levies could spiral into increased costs for consumers

US tariffs of 50% on Indian imports kicked in earlier this week, which could impact numerous sectors in the South Asian nation.

The levies are on a wide variety of Indian goods, and comprise a 25% tariff announced by US President Donald Trump in late July, along with another 25% imposed in early August as a 'penalty' for India's purchases of Russian oil and defense imports from Moscow, which Trump claims has indirectly fueled the Ukraine conflict.

In response, Prime Minister Narendra Modi has called on India to become more self-reliant and has asserted that "the interest of farmers is our top priority." On Tuesday, he urged citizens to prioritize buying "Made in India" products. He acknowledged that India may face challenges due to the tariffs, but expressed willingness to accept them.

Views vary on how the tariffs will impact India. State Bank of India (SBI), the country's top lender, notes that US trade accounts for only 2% of India's GDP, suggesting a minor impact. However, Goldman Sachs has warned that sustained 50% levies could lower GDP growth from 6.5% to below 6%.

Which sectors are impacted?

Several key Indian product categories, including textiles and apparel, gems and jewelry, and seafood, will be hit. Additionally, machinery and mechanical appliances, metals such as steel, aluminum, and copper, organic chemicals, agricultural products and processed foods, leather and footwear, handicrafts, furniture, and carpets will be impacted.

According to trade experts, industries such as diamond-polishing, shrimp, and home textiles are likely to experience a decline in sales volume. The shrimp export sector is particularly vulnerable, with the US accounting for 48% of its revenue, which could lead to a significant decline in marine exports, according to ratings agency Crisil Ratings.

India's Gem and Jewellery Export Promotion Council (GJEPC) said the US tariffs would have far-reaching repercussions across the economy - "disrupting critical supply chains, stalling exports, and threatening thousands of jobs"- given that the US is the sector's single largest market, accounting for over $10 billion in exports, nearly 30 % of the industry's total global trade, according to a report in the Indian Express.

Trade group GTRI has said these key sectors could result in a decline of $18.6 billion and a 43% overall drop in shipments to the US, potentially putting hundreds of thousands of jobs at risk. Also, India is currently the world's largest exporter of basmati rice, and any price hike in the US could see a major loss of market share, a report by News18 said.

Sectors that won't be impacted

India's generic drug manufacturers, which export $10.52 billion worth of products to the US, will be exempt from the new tariffs. However, Trump has cautioned that pharmaceutical companies that rely on Indian manufacturing may face pressure to relocate their operations to the US in the near future.

"In the generic drug market, India supplies nearly 35% of the pharmaceutical needs of the US. If the US shifts manufacturing and API production to other countries or domestic facilities, it will take minimum 3-5 years for meaningful capacity," SBI said.

Similarly, smartphones, computers, and other electronic devices are exempted from the reciprocal tariffs for now, reports said. In essence, the cost of Apple iPhones (including the upcoming iPhone 17 series) manufactured in India will not be impacted by the proposed tariffs.

Apple CEO Tim Cook has defied Trump's request to reduce manufacturing in India and is planning to invest about $2.5 billion to boostiPhone productionin the South Asian country, the Times of India (TOI) reported.

What are Americans saying?

American economist and 2008 Nobel laureate Paul Krugman noted in a Substack post that key US economic data is taking on an increasingly "stagflationary" tone. He observed that there is widespread agreement among economists that tariffs tend to fuel inflation, with the exception of a few economists who are affiliated with the Trump administration, either directly or in effect.

Economist Jeffrey Sachs called it "the stupidest tactical move in US foreign policy" and a self-destructive act that undermines American strategic interests, according to an NDTV report.

To put this into perspective, the inflation rate in the US, as of June, stands at 2.7%. This means the tariffs could potentially push inflation up by nearly 75% of the current rate in the short term.

In a post on X, the House Foreign Affairs Committee of Democrats said: "Trump's latest tariff tantrum risks years of careful work to build a stronger US-India partnership."

There are also concerns about the impact of tariffs on Americans' wallets, with Treasury Secretary Scott Bessent admitting that US citizens pay the price for levies, not the penalized country.

(RT.com)