Zero-for-Zero Tariffs: A Strategy to Counter US Trade Barriers

Why in the News?

The zero-for-zero tariff approach is being considered as a way for India to counter US reciprocal tariffs. This method involves mutual tariff elimination on select goods, offering a faster alternative to bilateral trade deals and minimizing the impact of new trade barriers.

Zero-for-Zero Tariffs: A Strategy to Counter US Trade Barriers

Impact of Reciprocal Tariffs on India

  • If uniform reciprocal tariffs are imposed, Indian exports may face an additional 4.9% tariff (up from the current 2.9%).
  • If applied sectorally, industries like agriculture, pharmaceuticals, diamonds, jewelry, and electronics will be significantly impacted.
  • If imposed on specific product lines, the impact will be minimal as India and the US do not trade in the same products.
  • Regardless, India will experience some effect due to its higher import tariffs compared to the US.

Why Zero-for-Zero is Better Than a Trade Agreement ?

  • A bilateral trade agreement would take a long time to negotiate and might not prevent reciprocal tariffs.
  • India would need to address complex issues like opening its protected agriculture sector, which supports millions of poor farmers.
  • A zero-for-zero deal can be finalized quickly, avoiding contentious negotiations.
  • If agreed upon, this approach could be implemented before reciprocal tariffs take effect.

Understanding the Zero-for-Zero Tariff Approach:

  • This strategy suggests India eliminate import duties on selected products.
  • In return, the US would remove tariffs on an equivalent number of goods.
  • This would lower India’s average tariff rates, reducing the impact of reciprocal tariffs.
  • Experts argue this is a quicker and more effective alternative to a bilateral trade agreement.