RECIPROCRAL TARIFFS : WHETHER US IS HEADING FOR A RECESSION.?

IMPLICATIONS OF RECIPROCRAL TARIFFS.

Imposition of tarrifs by Donald Trump administration across countries and commodities are impacting both geopolitical challenges and the functioning of the global economy. Trump's 25% tariff imposed on Aluminium and steel with effect from 12th March  aims to boost US  factory employment.But  President's uncertain policies are adversely impacting stock market and creating recessionary trends in the economy. According to Moodys the  credit rating agency , due to US  tariffs  Indian steel producers will face difficulties like reduction in prices and profit margins.US tariff on steel will lead to increased competition and  over supply in other steel producing markets. As per Global Trade Research Initiative (GTRI) data US imports of steel and aluminum witnessed upward trend despite starting of trade war in 2018 when imports was $31.1 billion which increased to $33 billion in 2024.As primary supliers of steel and aluminum Canada supplied $7.7 billion, Brazil $5 billion, and Mexico $ 3.3 billion during this period. But imports from China and India remained considerably  lower at 552 $ million and $ 550 respectively. The European Union and Canada announced retaliatory tariff against USA. Canada would impose 25% additional tarrifs onUS imported goods including steel, aluminum, computers,sports equipment etc which is expected to yield additional $20.6 billion to  Canada.On the other hand European Union plans to impose 50% tariff on American exporters of whiskey, motorcycles, motorboats etc with effect from 1st April 2025.Other goods to fetch tarrif levy are poultry, beef,American chewing gum,white chocolates,soybeans etc. 

President Trump has consistently described India as as a high tarrif nation.Apart from reciprocal tarrif,specific tarrif country by country tarrifs can be imposed by the US. As far as existing trade surplus with USA are concerned countries like China, Mexico, Canada, Vietnam ,India etc had more trade surplus with US or value of goods exported  from these countries are far higher than the value of imports from USA to these countries. Available data indicate that China's trade surplus with USA is as high as $295 billion as against India's merchandise surplus of $ 45 billion. Exports from India to USA account for about 19% of goods exported from India. Among,major Indian exports items pharmaceutical apparels and jewelry remained on the top. Within Pharmaceuticals one third of our generic drugs were exported to US. While Canada's share of total aluminum exports to US were about 44% India's share was 10%,and imposing of tarrif is likely to decline India's share further .Trump was threatening to impose 200% tariff on Alcohol imported from European Union escalating trade tensions. India's Commerce Minister  has cautioned  the need for changing the strategy of exporters and abandon protectionist mind set to succeed. Government is working hard to ensure good fortune to Indian exports. With hardly three weeks left for the US reciprocal tarrif plan to come into action Indian Government has asked industry to shed their current protectionist stance.India's key priorities are reassuring control over agricultural sector which has significant political implications. The US on the other hand is pushing for greater access to Indian agricultural markets. While India seeks reciprocity without jeoparding it's small farmers, large American farmers with latest technology is to boost crop output are attempting access to India. In any case intense consultations are done in India by relevant departments and Ministries for making valuable recommendations. 

IMPACT ON US ECONOMY 

Experts observed that decades of consistent US policy towards open trade  bas been upended under Trump administration through his threats to impose stiff tarrifs on the  trading partners which were initially dismissed as a crude negotiating tactic.But business leaders are taking the threats more seriously. They observed that current happenings are like in completely abnormal times. Market turbulence has taken hold and investors appear rattled.Tariffs on steel  are making double dose of uncertainty to industry specifically more to Canada. The Bank of Canada projected  that prolonged tarrif of 25% would over two years permanently reduce  GDP by 2.5%. Further hike in tariffs  could result in to severe recession.  Trump expected tariff from Canada, Mexico and China would  raise revenue by $ 120 billion a year. According to the Committee on Responsible Federal Budget market losses in the S&P500 alone have accumulated to US $4 trillion as on March 10th 2025.In short United State's protectionism if persists beyond short term it will lead to not only low GDP growth but also lower living standards for current and future generations in affected countries. To reduce the intensity of such effects Government needs to help both companies and workers to pivot further enhancing their fiscal deficit. Workers will also have to undertake adequate upskilling, reskilling and and training activities as per emerging requirements  in the job market. According to European union list of American products they are targeting is expected to minimize political and economic cost of tarrif for the US while minimising the harm to European businesses and consumers. US tariff leave its trading partners with a difficult choice over retaliation.Hitting back with tariff against American products might act as a deterrent against further US levies or bring Trump administration to the negotiating table In any case both parties must deescalate and find a negotiated outcome at the earliest. 

 WHETHER US IS  HEADING FOR A RECESSION ?

While in 2024 US achieved maximum GDP growth of 4% among Advanced Economies and market sentiments further sky rocketed after president Trump came to power.But GDP forecasts for US has now declined to just 2.4%,Primarily due to increase in inflation, trade deficit and elevated public debt estimated to be $36 trillion out of which $ 9 trillion has to  be settled shortly. US move to reduce tax rate drastically may reduce  fiscal space further. Eventhough previous administration was ousted mainly in the name  of inflation and unemployment as of now major macroeconomic indicators are adverse like high inflation, trade deficit, public debt, budget deficit,decline in dollar index.Increase in trade deficit was quickened by US importers resorting to increased imports from trading partners before the effective date of Tariff,in contrast due to policy uncertainty other countries drastically reduced imports from USA. In the resultant unprecedented fall in the stock market indices in USA technology stocks suffered most. Exports disruptions due to US reciprocal tarrif is to take effect on April 2nd accordingly Indian industry players are instructed by the Government to divert  and substitute imports from China and other countries to USA. Economic forecasters expect that the occurrence of US down turn in 2025 has increased sharply over the past month and likely to continue at least in the short period. Technically speaking recession occurs when  there is  continuous negative growth for two consecutive quarters in GDP growth.Eventhough Technically there is no possibility of a recession ,the bewildering volatility of US policy - as tariffs are threatened, withdrawn,ratched up and then dialled  back again is raising uncertainty ,dampening sentiment and giving  recessionary warnings.Consequently it is likely to accelerate the process of dedolarisation further in view of increasing US trade deficit, alarming public debt and large amounts of  repayment or refinancing obligations along  with decreasing dollar index and rising of Euro as well. Already intensive selling of US debts in turn accelerated  the sale  of US bonds across the globe. Simultaneously Central Banks of most countries including Reserve Bank of India started replenishing their foreign exchange reserves (FER) with more gold in place  of US dollar. In short the uncertainty in policy coupled with other geo political factors have triggered slow down(at least temporarily) in other wise stable leading advanced economy namely USA.