A ‘zero-to-zero’ tariff approach to India is being described as the best way to deal with US President Donald Trump’s proposed mutual tariff. Mint explains what this initiative is and why something considers it to be a better option than bilateral trade agreement.
What are ‘zero-for-zero’ tariffs?
This is an approach to India to effectively deal with the mutual tariffs that the US has threatened. This involves identifying India specific tariff lines or product categories and ending import duties on them. In response, America can eliminate tariffs on a comparable number. In this way, India’s high average tariff, a point by US President Donald Trump, has repeatedly spoken, will reduce rapidly. And if mutual tariffs still apply, the effect will be either low or close to zero for India. Experts argue that it is better to sign the zero-for-zero bilateral trade agreement.
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How can this be better than a business deal?
It will take time to negotiate any bilateral trade agreement, and it is unlikely to threaten mutual tariffs that the US government has threatened with levy. Global Trade Research Initiative, a think tank that has looted the concept of ‘zero-to-zero’ tariff approach, has said that a bilateral trade agreement will also force India to deal with issues such as opening its protected agricultural sector, for which it is not ready. Farming employs millions of poor in India. On the other hand, the zero-for-zero deal can be hit quickly, avoiding controversial issues. If the US agrees, a deal can be signed before the mutual tariffs are effective.
When are mutual tariffs effective?
From April 2, Trump says. The offices of US Commerce Secretary and US Trade Representative are in the process of reviewing the business policies of partners to recommend high tariffs as per the mutual tariff scheme introduced by the US President on 13 February. The scheme allows the US to increase tariffs on countries with which the US has a trade deficit.
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How will they affect India?
If mutual tariffs are imposed evenly on all imports, experts said that Indian exports will see a additional tariff of 4.9% from the current level of 2.9%. If they are applied regionally, areas such as agriculture, pharmaceuticals, diamonds, jewelery and electronics will be greatly affected. If they are applied on product lines, the effect will be limited as India and America does not trade in the same products. Whatever way, there will be some effect as India’s tariffs on imports are higher than in the US.
So why is the textile industry excited?
Trump’s 20% tariff on Chinese imports set up in two phases has made Indian textile exports competitive Vis-e-Viz China. In addition, China retaliated by imposing 15% duty on American cotton. This Chinese textile will add the cost of players. If and when 25% of tariffs applied to Mexico are applied, India will become a destination after a demand for source of textile products. What can spoil the party is a mutual tariff-that is why the Indian textile sector is for zero-to-zero tariffs.
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