Impact of Trump’s Tariffs on Economic Growth: Potential Reduction of 0.2-0.5 Percentage Points
The economic outlook for India faces potential challenges due to tariffs imposed during the Trump administration, according to Finance Secretary Seth. Speaking at a Hudson Institute event in Washington, he warned that these tariffs could reduce India’s GDP growth by 0.2 to 0.5 percentage points. While he remains optimistic about achieving a 7% growth rate in the coming decade, he emphasized the need for faster growth to meet long-term development goals. Amidst ongoing trade discussions with the U.S., the global trade landscape is also showing signs of strain.
Impact of Tariffs on India’s Growth
Finance Secretary Seth highlighted the adverse effects of tariffs introduced under former President Donald Trump, suggesting they could cut India’s economic growth by as much as half a percentage point. He noted that the current growth rate is around 6.5% for the year, but the tariffs could shave off between 0.2% and 0.5% from this figure. Seth pointed out that the indirect consequences of these tariffs could be even more damaging, indicating that the second-order effects would be significant. He expressed concern that the uncertainty surrounding U.S. trade policies could hinder India’s economic progress.
Despite these challenges, Seth remains hopeful about India’s potential to reach a 7% growth rate over the next decade. He stressed the importance of accelerating growth to achieve the country’s long-term development objectives. Additionally, he confirmed that an Indian delegation is currently in the U.S. for trade talks, although he did not specify which officials they would be meeting.
Global Trade Downturn
The warning from Seth comes amid a broader downturn in global trade, with the World Trade Organization (WTO) projecting a 0.2% decline in goods trade by 2025. This decline is attributed to shifting U.S. trade policies and escalating tensions with China. If the U.S. implements its most severe “reciprocal” tariffs, the WTO estimates that global trade could plummet by 1.5%. North America is expected to be particularly affected, with exports projected to fall by 12.6% and imports by 9.6%.
WTO Director-General Ngozi Okonjo-Iweala noted that the ongoing uncertainty surrounding trade policies poses a significant risk to global economic growth. She emphasized that this uncertainty could act as a brake on global progress. Similarly, WTO chief economist Ralph Ossa warned that tariffs can have wide-ranging and often unintended consequences, further complicating the global trade landscape.
Prospects for U.S.-India Trade Relations
In a potential positive development, U.S. Treasury Secretary Scott Bessent indicated that India may soon finalize a bilateral trade deal with the U.S. This deal could help India avoid the steep 26% tariff currently paused until July 8. Under existing U.S. policy, India is subject to a 10% tariff. Bessent expressed optimism about the negotiations, noting that India has “fewer non-tariff trade barriers” and offers “very little government subsidies.”
During a recent visit to Jaipur, U.S. Vice President JD Vance urged India to reduce trade barriers and increase access to American goods, particularly in the energy and defense sectors. This call for greater openness in trade reflects the ongoing efforts to strengthen U.S.-India economic ties amidst the backdrop of changing global trade dynamics.
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