US President Donald Trump announced reciprocal tariff today on April 2. The day is referred as the ‘Liberation Day‘. US President Donald Trump announced a 26 per cent reciprocal tariff on India.The US will impose a 10 per cent base tariff on all countries from April 5.

Other economies announced that they would impose retaliatory tariffs. This may turn into a potential trade war and impact global inflation.

LEARNING FROM HOME/ WITHOUT CLASSES/ BASICS

TARIFF

A tariff is a tax. It is a type of trade barrier that makes imported products more expensive than domestic ones. Tariffs typically take the form of taxes or duties levied on importers, which are eventually passed on to consumers. They are commonly used in international trade as a protectionist measure.

The main types of retaliatory trade barriers are subsidies, standardization, tariffs, quotas, and licenses.

India’s Position

India should push its  Bilateral Trade Agreement with the USA . It could secure a to secure favorable terms for its exports. Concomitant it must finalise trade agreements with the EU and the UK. The Indian government should engage in a comprehensive assessment of its trade policy. It should reexamine both tariff and non-tariff barriers that impede greater integration with global supply chains. India already has signed trade agreements with Australia and the UAE.

WTO

In the WTO, tariff covered by the Most Favoured Nation treatment obligation. It means that, with some exceptions, a member of the WTO should charge the same tariff on a product for imports from all other WTO trading partners.

But in the present context of rising protectionism and trade wars, its effectiveness questioned. To ensure its survival and continued relevance, the WTO must undergo crucial reforms. These reforms should particularly consider the interests of developing countries like India, which rely on a fair and transparent global trading system.

Key Areas of Reform

1. Dispute Settlement Mechanism (DSM) Reform
   • The Appellate Body of the WTO has been dysfunctional since 2019 due to the U.S. blocking the appointment of new judges.
   • India and other developing nations require a fully operational DSM to protect their interests against unilateral trade restrictions by powerful economies.
2. Strengthening Special and Differential Treatment (S&DT)
   • Developing and Least Developed Countries (LDCs) need preferential treatment in trade policies to promote economic growth.
   • Advanced economies have been pushing to limit S&DT benefits, which could harm India’s access to export markets.
3. Agricultural Subsidies and Food Security Concerns
   • WTO rules on domestic support limit India’s ability to provide subsidies to farmers under the Minimum Support Price (MSP) system.
   • Reform needed to ensure that India can continue public stockholding for food security without violating WTO commitments.
4. Regulating Unilateral Trade Measures
   • Major economies like the U.S. and China impose tariffs and trade restrictions, often outside WTO rules.
   • The WTO needs stronger enforcement mechanisms to prevent unilateral actions that harm global trade, particularly for emerging economies like India.
5. E-Commerce and Digital Trade Regulations
   • The global shift toward digital trade requires updated WTO rules on data localization, cross-border data flow, and taxation.
   • India must ensure that reforms protect its digital sovereignty and allow space for domestic tech companies to grow.
6. Environmental and Sustainability Standards
   • Developed nations are imposing stricter environmental regulations, which may act as non-tariff barriers for Indian exports.
   • The WTO must ensure climate-related trade policies do not disproportionately affect developing economies.

Conclusion

For the WTO to remain relevant, it must undergo structural reforms addressing the concerns of both developed and developing nations. A fair and transparent trade system is essential for India’s economic growth, and reforms in dispute resolution, agricultural policies, and trade regulations are crucial. India must actively participate in WTO negotiations to safeguard its national interests while supporting a multilateral trading system.