Why India Might Reject ‘Zero-For-Zero Tariffs’ in US Trade Negotiations

Introduction

In recent trade negotiations, the United States has proposed a ‘zero-for-zero tariffs’ agreement to India, aiming to eliminate tariffs on certain goods. However, India is considering rejecting this proposal due to several strategic and economic reasons.

Key Concerns for India

• Economic Impact: India fears that removing tariffs could harm its domestic industries, which rely on tariff protection to compete against more established international players.
• Trade Imbalance: There is a concern that zero tariffs could exacerbate the existing trade imbalance between the two countries, favoring the US.
• Revenue Loss: Tariffs are a significant source of revenue for the Indian government, and their removal could lead to substantial fiscal deficits.

Strategic Considerations

• Protecting Local Industries: India aims to safeguard its nascent industries, particularly in sectors like agriculture and manufacturing, from being overwhelmed by US imports.
• Negotiation Leverage: By maintaining tariffs, India retains leverage in broader trade negotiations, potentially securing more favorable terms in other areas.

Potential Alternatives

Instead of a blanket zero-for-zero tariff agreement, India might explore sector-specific agreements that protect its interests while still enhancing trade relations with the US.

Conclusion

India’s hesitance to embrace ‘zero-for-zero tariffs’ stems from a need to protect its economic interests and maintain strategic leverage in trade negotiations. While the proposal offers potential benefits, the risks to domestic industries and government revenue are significant concerns. As negotiations continue, India may seek alternative arrangements that balance these factors more effectively.

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