On April 2, 2025, the newly elected President of the United States (US), Donald Trump, has announced imposition of high tariffs on goods coming from different countries, which he calls reciprocal tariffs. President Trump has chosen to impose different tariffs on different countries. In this context, President Trump has announced a 26 percent tariff on India, which means that goods exported from India to the US will face a 26 percent tariff.
The unilateral announcement of tariffs by the US administration is in complete violation of WTO rules. It is also true that the US has violated WTO rules earlier too; but this time scale of violation is much bigger, as Trump has imposed high reciprocal tariffs on one and all. It has to be understood that till now various countries, including Bharat, have been imposing import duties based on their commitments in the WTO.
With the birth of WTO, the import duties that could be imposed by every country, known as ‘Bound Tariffs’, were determined by way of agreement. In this case, the bound tariff that can be imposed by Bharat is on an average 50.8 percent. However, Bharat is actually imposing an average weighted import duty (Applied Tariff) of nearly 6 percent, which is much less than the bound tariff.
It has to be understood that not President Trump’s complaint, that Bharat imposes high duties on goods coming from USA, is not a legitimate complaint, as those countries impose import duty within the limits of their bound tariff as per WTO rules, which are in accordance with the agreements made earlier. Here it is important to understand that why did America accept the imposition of high import duty by other countries in the earlier GATT agreements?
Before the birth of WTO, various countries used to impose ‘Quantitative Restrictions’ (QRs) also, in addition to import duties to protect their industries in their respective countries. Along with this, various countries used to impose many types of restrictions on foreign capital also, to protect their industries. USA and other developed countries wanted that India and other developing countries should reduce their import duties and stop using QRs so that their goods can be exported to these destinations, unhindered.
Along with this, they also wanted that developing countries should allow the capital of developed countries to enter their countries, change their intellectual property laws, agree to agreement on agriculture, and allow services to be a part of trade negotiations. Developing countries were not ready for all this. In such a situation, developed countries allowed developing countries to impose higher import duties so that they would agree to new demands from developed countries. In such situations, when developing countries were permitted to impose higher import duties, it was not a charity, but a bargain. In such a situation, if the US administration now says that India is imposing higher duties than US, their argument is not legitimate one.
In fact, President Trump is denying the very existence of WTO. The imposition of unilateral tariffs by the US is against both the rules and spirit of the WTO.
WTO has been a powerful organization and the agreements made in it are legally binding. In such a situation, the announcement of unilateral tariffs by the US signifies the end of the WTO.
Now that we are witnessing a complete disregard for the WTO, it is time to think afresh about the agreements on TRIPS, TRIMS, services and agriculture in the General Agreement on Tariffs and Trade (GATT). It is worth noting that the agreement on TRIPS has caused us huge losses in terms of royalty expenditure, apart from negative impact it had a on public health. Royalty expenditure by India, which was less than a billion US dollars, in 1990s, has now become more than US $ 17 billion annually.
Due to the WTO and its so-called rule-based international trade system, Bharat has been a victim of unfair trade practices such as dumping by China and unfair subsidies by the Chinese government and the obligation to grant MFN (most favored nation) status even to a non-market economy like China; unfair competition from subsidized agricultural products from developed countries like the US, heavy royalty outgo by developing countries including Bharat, are just a few examples of how Bharat and other developing countries have been suffering under the WTO.
It has been proved that multilateral agreements, such as WTO are not good for developing countries like Bharat, and Bilateral Agreements are most suited to us, as the same can be inked keeping interests of the nation, with mutual consent with our trading partners. Now the time has come that when developed countries like the US are completely disregarding the WTO, we should think of a strategy to come out of other exploitative agreements including TRIPS in the WTO.
Also, after the dissolution of the WTO, it will now be possible to impose quantitative restrictions (QRs). In such a situation, we can make a big effort towards decentralization and employment generation by once again starting the policy of Reservation of products for small industries, to protect our small and cottage industries and help increasing employment opportunities in the country.
Now that President Trump has imposed tariffs on goods across the world, we have to strategize our international trade to take advantage of this situation. There are many sectors that may benefit, as our exports may find new markets in the US, while those from China may suffer due to the high reciprocal tariffs imposed by the Trump administration. Also, as the EU and other countries are coming forward for new partnerships in the global value chain, in sectors like Defence, we should promote and support our industries in acquiring foreign markets, post Trump’s tariffs.
About author: Prof Ashwani Mahajan is Delhi-based national co-convener of Swadeshi Jagran Manch.
