Bargaining Chip

 

THE ‘Liberation Day’ promised by United States President Mr. Donald Trump has spooked markets all over the world after the reciprocal-tariff regime took shape from April 2, 2025. The tariffs vary from country to country but mostly affect all economies as Mr. Trump is going by his promise made to domestic electors of Making America Great Again. Many economies are severely hit while some are still assessing the outcome of the reciprocal tariffs by the United States. In the melee is India, taking a burden of extra 27% tariffs from Mr. Trump despite enjoying an important place in America’s foreign policy firmament.

 

The message is clear -- when it comes to raw business, relations do not matter for a hardcore trader. It is now up to the world to find a way to dodge Mr. Trump’s whims and strange economic policies while maintaining relations with the United States at a completely detached plane. The Trump tariffs were coming even before he was elected President of America for the second time. It was his premise to make a comeback to the Oval Office, which he did with a handsome victory in the elections. Backed by a populace firmly believing in Mr. Trump’s rhetoric of taking back America’s deserving share from the world, the US electors paved his way to the White House. And since that day, the world is finding itself on the tenterhooks of Mr. Trump’s policies on almost everything under the sun.

 

The reciprocal tariffs are product of many things including the domestic economic situation of the United States. By playing the victim card, Mr. Trump is shoring up his political position at home which is reflected in the 15 per cent rise in his popularity since his inauguration. Another big factor behind the tariffs is the macroeconomics of managing a debt crisis. America is on the verge of a debt default yet again and Mr. Trump is set to get US Congress nod to raise the limit. However, before that, the US President’s economic advisory team has done a simple mathematics of bringing down the rising bond yields in America. The tariff fear has come as a weapon to spread fear in the markets, leading to huge selling of stocks. The US markets were the worst hit on April 3 when the tariffs came into effect. The Dow and Nasdaq could not sustain the selling pressure as the indices tanked massively. The fear did lead to panic and threat of inflation but at the same time it turned investors to a safe haven in bonds.

 

The sudden high demand has started rising of bond prices thus automatically bringing down the bond yields. It is reflected in the 10-year treasury yield touching 3.9 per cent from 4.3 per cent as per US Treasury. In simple terms, lower yields translate into cheaper borrowing for the government. While the US still faces the threat of recession, there is also a larger possibility of Mr. Trump using the reciprocal tariffs to hammer out good bilateral trade deals. A case in point is the Indian response to the tariffs. Though India remains largely insulated from the reciprocal tariffs being a consumption-driven economy, it stands to benefit from the decision by raising exports to the US and enter with a good price advantage. India’s exports to the US stand at just two per cent to GDP which is much lesser than many other countries which will bear the brunt of US tariffs. India’s exports might reduce slightly after the decision but due to relatively higher tariffs imposed on competitors, Indian companies may end up with larger acceptance due to a price advantage. It is a big opportunity in this crisis for India. Already, New Delhi is on the job to work out modalities of doubling the bilateral trade. Presenting a better bargain to a trader is always a handy tool to circumvent or mitigate consequences on a few deals. A good bargaining chip is still up India’s sleeve. All it needs is convincing the hardcore trader.