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Critical Topics and Their Significance for the UPSC CSE Examination on March 10, 2025

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Tariffs

For Preliminary Examination:  Current events of national and international importance

For Mains Examination: GS II, III effects of policies on tariffs

Context:

US President Donald Trump’s latest salvo that India has “agreed” to “cut their tariffs way down” did not elicit any immediate response from Delhi Saturday. Officials indicated it’s one bait that the Indian establishment is not going to bite, especially when the ground is being prepared for negotiations on a bilateral trade pact.

Read about:

What are tariffs and why are they imposed?

How are tariffs retaliated?

Key takeaways:

Tariffs refer to taxes or levies that a government applies to imported goods and services. Their primary purpose is to raise the cost of foreign products, making them less competitive against locally produced goods, thereby promoting domestic consumption. They also function as a safeguard for homegrown industries against international competition while serving as a revenue stream for the government.

From India’s perspective, a bilateral trade agreement is expected to enhance two-way trade in both goods and services, improve market accessibility, lower tariff and non-tariff restrictions, and strengthen supply chain networks. Negotiators are working towards finalizing the agreement by autumn this year.

The United States is among India’s largest trading partners, with bilateral trade in goods and services amounting to $190 billion in 2023. India’s trade surplus in goods with the US has increased significantly post-COVID-19, rising from $17.30 billion in 2019-20 to $35.33 billion in 2023-24. This period has also witnessed a shift in India’s export composition. Meanwhile, imports from the US have grown at a slower rate compared to India's exports over the past five years.

India has five key takeaways regarding the latest trade-related moves by former US President Donald Trump:

• During Prime Minister Narendra Modi’s meeting with President Trump at the White House on February 13, both nations agreed to initiate negotiations for the first phase of a multi-sector Bilateral Trade Agreement (BTA), with the goal of concluding it within seven to eight months.

• India emphasized the importance and urgency of the negotiations to the Trump administration on February 13, indicating that it would send lead negotiators once the US had its Trade Representative in place.

• The Indian government considers this development a positive step, as both sides share a common understanding of the proposed trade agreement.

• Given the comprehensive nature of the deal, the negotiation process is expected to be complex and prolonged, involving multiple rounds of discussions at both technical and political levels.

• Until negotiations are completed, India aims to collaborate with US trade officials to prevent the imposition of reciprocal tariffs. Delhi expects a temporary delay in tariff imposition, similar to how Trump recently postponed tariffs on Canada and Mexico for a month

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