Reciprocal tariffs could be withdrawn if India-US conclude trade deal: Former CBIC Chairman

Reciprocal tariffs appear to be a starting point, pushing India and the US toward deeper trade negotiations.

The imposition of reciprocal tariffs by the United States from April 2 is likely to emerge as a critical concern for Indian exporters, adding uncertainty to trade relations between the two nations. As discussions over a potential bilateral trade agreement progress, former Chairman of the Central Board of Indirect Taxes and Customs (CBIC) Vivek Johri says that there is a need for a balanced outcome that safeguards India’s key interests while ensuring market access for Indian goods in the US.

Reciprocal tariffs appear to be a starting point, pushing India and the US toward deeper trade negotiations. “If the two countries are able to conclude a trade deal that the US sees as beneficial to its interests, reciprocal tariffs may even be withdrawn,” the former CBIC chairman and senior advisor at KPMG told Moneycontrol.

The US, which has long sought to address its trade deficit, may expect India to provide concessions in areas of American interest. “We would also need to give concessions in areas of interest to the US, especially since there is an imperative to correct the trade imbalance between the two countries,” the former CBIC Chairman added.

Protecting Domestic Interests

For India, the challenge is to ensure a balanced trade agreement that protects its key sectors, including agriculture, micro, small and medium enterprises (MSMEs), and food security. At the same time, there is an opportunity to negotiate better access for Indian exports, particularly in pharmaceuticals, gems and jewellery, marine products, leather and footwear, automobile parts, electronic hardware, and electrical machinery.

“Our strategy should be to secure better market access for these or at least ensure a standstill so that these sectors are not worse off,” he emphasised.

Both countries have expressed their commitment to increasing bilateral trade to $500 billion over time, and a trade deal is viewed as a mechanism to achieve this goal. However, in the immediate future, Indian exporters may face turbulence, with supply chain reconfiguration and market diversification emerging as medium-term strategies, he added.

Uncertainty in Tariff Structure

There remains considerable ambiguity over how the US will structure the reciprocal tariffs. The method of imposition—whether based on an overall trade-weighted average, separate industrial and agricultural categories, or at a more granular tariff-line level—could significantly alter its impact on Indian exports.

“The impact would obviously also be a function of the competitiveness of the affected industry. In the sectors where Indian manufacturers are highly competitive, the impact of tariffs alone may be less severe compared to others,” the former CBIC Chairman noted.

Exploring Alternative Markets

As Indian exporters brace for challenges in the US market, the conclusion of Free Trade Agreement (FTA) negotiations with the European Union and the United Kingdom could offer compensatory market access opportunities. “In the meanwhile, one of the things that could help them is the early conclusion of ongoing Free Trade Agreement negotiations with two other major trading partners, namely the European Union and UK,” he added.

In the long run, and more generally, both Indian industry and policy-makers should view this as an opportunity to further improve the global competitiveness of our merchandise through improvements in factor productivity, cost-cutting and scaling up, Johri said.Need for Policy Support

On the policy front, CBIC could play a role in minimising trade friction by reducing transaction and compliance costs at the border. “CBIC should focus on enabling further reduction in transaction and compliance costs at the border by shrinking dwell time of export-import cargo and expediting the disbursement of export incentives and drawback,” he suggested.

He cautions against viewing trade imbalances solely as a function of tariff and non-tariff barriers. “On the face of it, the US side has a concern that its economy faces a huge trade deficit vis-a-vis its major trading partners. In their analysis, this stems solely from trade restrictions that US goods face when entering these markets. Such a stance misses the possibility that there could be other contributory factors, such as constraints in the US domestic economy itself,” the former CBIC Chairman said.

(The views expressed by Vivek Johri, former Chairman, CBIC and Senior Advisor, KPMG are personal.)