Donald Trump was set to announce widespread reciprocal tariffs on Monday evening US time. Whether he really imposes reciprocal tariffs for everything on every trader partner will be known early Thursday IST. And whether he maintains them for a long period or uses them as negotiating chips is something only Trump knows. An analysis published yesterday in these pages explained why a true rejuvenation of the non-rich in America requires a more serious engagement with the change in structure of
Reciprocal US tariffs will spark major chaos US is the largest importer and second largest exporter in the world even today
Data from United Nations Council on Trade and Development shows that US is the largest merchandise importer in the world. This also means that US imposing widespread tariffs on other countries will have the largest possible disruption because of a trade policy action by a single country. Even in terms of exports, while the US has lost its earlier dominance, it is even today the second largest exporter in the world after China. This also means that countries retaliating to the US tariffs will also lead to a large disruption for US exports.
And reciprocal tariffs will have a broad-based impact across commodity markets
This is another important thing to keep in mind while discussing the impact of Trump’s tariffs. The current mercantilist shift in US policy makes it very likely that it will adopt a particularly hawkish stance in commodities where it runs a large trade deficit. A commodity-wise analysis of US merchandise trade deficit across 12 broad categories shows that US had a trade deficit across every category except energy in 2023. Almost 60% of US trade deficit was in just three categories; namely, electronic products, transportation equipment and machinery. What is remarkable about the broad commodity composition of US’s merchandise trade deficit is the fact that it has shifted towards manufactured goods rather than natural resources such as petroleum and forestry products between 2001 and 2023. This suggests a loss in competitiveness than just difference in resource endowment. 2001 is when China joined the World Trade Organisation.
India accounted for 5% of US’s total trade deficit in 2024
In the larger scheme of things, India is not as much of a problem in US’s trade deficit. Data from US government’s Bureau of Economic Analysis shows that India accounted for five percent of US’s overall trade deficit in goods and services in 2024. To be sure, this number has increased consistently after 1999 and has stabilized since then. India was among the top ten countries in terms of US’s total trade deficit.
And US is an important cushion in India’s overall trade balance
This is perhaps the most important factor India will have to take into account while dealing with Trump’s tariffs. India’s merchandise trade surplus with the US covered more than 40% of the trade deficit with China. A long term look at the data suggests that India’s rising trade surplus with US has come at a time when its trade deficit with China has been rising. Clearly, Indo-US trade has had a cushioning impact on India’s overall trade balance which has worsened significantly because of rising deficit with China. Given the fact that there is very little India can hope to export to China and the Chinese economy is sitting on a massive excess capacity which could get even more focused on India if China’s US exports were to suffer, India will have to make sure that it balances the disruption by the US well enough. While things might not be as bad for India as China and Mexico, the largest exporters to the US, the disruption and policy challenge will be far from insignificant.
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