The US has brought uncertainty into global trade given the announcements, amendments, postponements, legal blockades, and legal backings to reciprocal tariffs imposed on goods imported from across the world. As the largest economy in the world, these tariffs stand to reduce the cost-competitiveness of products exported by the US’s major trading partners. Naturally, all countries are keen to assess the impact these tariffs are likely to have on their exports, and are vying for a bilateral trade deal before the July 9 deadline runs out.
Country specific reciprocal tariffs announced on ‘Liberation Day’ of April 2, and due to take effect from July 9 have taken the limelight, which includes the 26 per cent additional tariff imposed on imports from India. However, tariff orders and proclamations over the last few months list product-specific exceptions which are already in effect. These announcements have listed products that are either exempted from tariffs (including semiconductors), or which attract uniform additional tariffs from most countries, including India, and they have been identified as: automobile, automobile parts, steel, steel derivatives, aluminium, or aluminium derivatives. The latest proclamation, effective June 4, doubled the additional tariff on steel and aluminium products to 50 per cent, from 25 per cent announced previously.
All orders list the product codes to which the tariffs apply. Still, it is difficult to ascertain the tariff applicable on several products. Surely, tariffs are repeatedly changing, but there are also overlapping products in multiple proclamations rendering ambiguity on applicable tariffs on at least 105 US tariff lines. There is overlap of another 54 products in two separate proclamations, although they are exempted from additional tariffs in both.
Additional uncertainly
A detailed analysis of the additional tariffs applied across all product codes (at US’s tariff-line-level) highlights the tariff dilemma and the additional uncertainly brought into global trade, affecting imports into the US from across the world, including from India.
There are 32 products that are announced as being exempted from tariffs (that is, 0 per cent additional tariff), but are also identified as automobile part and aluminium derivative — thereby attracting a 25 per cent tariff for the former; and even a 50 per cent tariff on the value of products’ aluminium content — which can be 0 per cent if the product is made using aluminium articles that are smelted and cast in the US (or 200 per cent if from Russia).
Moreover, 73 products are identified as a combination of aluminium, aluminium derivative, steel derivative, and/or automobile-part — where the same product attracts 25 per cent additional tariff as an automobile part, 50 per cent tariff as an aluminium/steel product, as well as 50 per cent tariff on the value of aluminium/steel, with special conditions applicable for 0 per cent tariff as well.
A supplementary guidance gives precedence to automobile part tariffs over other overlapping tariffs, and suggests that aluminium and steel tariffs stack on each other. However uncertainty continues around automobile parts, with potential for tariffs on more automobile parts, and there even being scope for ‘tariff offsets’ if final automobile assembly occurs in the US.
Subjectivity surrounds steel and aluminium tariffs too — due to tariff applied on the inherent value of metal (conditional on its source), and country-specific reciprocal tariff on the non-metal content of the product. Exporters of certain aluminium/steel products, who may have decided to tweak their supply chains and decided to procure aluminium/steel articles from the US (to be eligible for 0 per cent tariff post March 12), could now be in a fix — since effective June 4, this special condition stands revoked on 62 products.
Under their trade agreement with the US, automobile parts and metal product tariffs may be different for Canada and Mexico. Aluminium and steel imports from the UK remain at 25 per cent, but may increase post July 9.
Serious ramifications
Can we therefore estimate the quantum of US’s imports which are completely exempted from tariffs, what the exact tariffs on products are, and attempt to estimate the impact of tariffs on the trading partner’s exports? Appears tough. However, for businesses, tariff uncertainties can have serious ramifications — uncertainties stemming from how much their product does (and will) cost in the US, how much they should produce, how many people they should employ, and all this in turn having consequences on export performance, growth, and labour-market conditions in the exporting countries.
India is in the process of finalising a trade deal with the US, where such uncertainties should be discussed and avoided, to bring better clarity on the export front — benefiting firms already engaged in exports and those which may be looking to export in the future.
The writer is Fellow at National Council of Applied Economic Research (NCAER). Views expressed are personal