Global trade is shifting rapidly with Donald Trump back in the White House. After a tariff stand-off, the US and China have agreed to a 90-day truce; US tariffs on Chinese goods dropped from 145 per cent to 30 per cent, and China’s from 125 per cent to 10 per cent. While the move offers hope, the outcome remains uncertain, and tensions could quickly return. Nearly all countries, including India, are already facing a 10 per cent baseline US tariff.

India has been in Trump’s crosshairs since the start of his second term. On April 2, he proposed a 26 per cent reciprocal tariff on Indian imports, later withdrawn, but imposed a 10 per cent baseline tariff.

These duties, introduced under the International Emergency Economic Powers Act (IEEPA) of 1977, were recently blocked by a US court, though an appeals court granted interim relief, keeping them in place.

Even if reciprocal tariffs are scrapped for good, other levies, like metal tariffs under Sections 232, and other restrictions under Section 301, will remain. The uncertainty driven by the US’ volatile trade stance and ongoing legal battles are far from over.

What policy steps should India take? So far, India has largely avoided retaliating against US tariffs — except on May 12, when it informed the WTO of plans to counter the US duty on Indian steel and aluminum. Beyond that, India has taken a reconciliatory path, pursuing a trade deal with the US through tariff concessions.

Proactive approach

But this reactive approach needs to shift. India should adopt a proactive, broad-based strategy, including across-the-board tariff cuts. There are strong reasons for this: India’s average MFN tariffs, higher than many peers, distort markets and limit choices; unilateral tariff cuts are WTO-compliant and benefit all partners, unlike FTAs; and trade economists have long argued for such trade reforms, which are long overdue.

Tariff cuts improve resource allocation and boost overall economic welfare. Lower duties on intermediate inputs reduce costs, making domestic goods cheaper and exports more competitive.

While this spurs job creation through higher production, it can also raise dumping risks. China, a frequent offender, may target India regardless of tariff cuts due to weak global demand and its own strained economy.

As a large market, India is an attractive outlet for China’s surplus. In 2024, according to the Director General of Trade Remedies (DGTR), 25 of 31 ongoing anti-dumping investigations and 24 of 29 concluded cases involved Chinese firms.

While India’s DGTR follows a lengthy process to resolve dumping cases, a more strategic response to Chinese dumping in these uncertain times is to cut tariffs for all trading partners, except China.

This makes Chinese goods relatively costlier than those from other trade partners, which would reduce dumping risks while still reaping trade war gains. Though not strictly WTO-compliant, the global trade war itself is unfolding outside WTO norms. In such abnormal times, India must act decisively to protect its economic interests.

To test the impact of two policies — (i) cutting tariffs for all, and (ii) cutting tariffs for all except China — we ran global trade simulations using the GTAP dataset and model, a global computable general equilibrium model. The simulation results are in the table.

With a 25 per cent across-the-board tariff cut, India could gain $54 billion, boost GDP by 2.6 per cent, sectoral output by 2.8 per cent, and exports by 4.3 per cent.

However, imports from China would surge by 8.6 per cent, raising dumping concerns. Under the second policy, where tariffs on China remain unchanged, GDP, welfare, and output remain strong, domestic demand doubles, and exports stay positive.

In a rapidly shifting global trade landscape, India must respond with agility and strategic foresight. While forging a trade pact with the US may offer some gains, unilateral tariff reforms — especially those excluding China — can deliver economic dividends while safeguarding against dumping risks.

Ganesh-Kumar is a Professor and Jaiswal is a Ph.D scholar at the Indira Gandhi Institute of Development Research, Mumbai

Published on June 9, 2025