Trade conflict escalates! A large number of American orders have been canceled!

On August 17, 2024, India’s New Delhi Television reported that the U.S. trade delegation’s planned visit to India from August 25 to 29 was abruptly canceled.

This visit was supposed to be a crucial opportunity for both sides to engage in dialogue regarding the escalating trade dispute.

However, the sudden withdrawal of the delegation has undoubtedly intensified tensions between the U.S. and India, signaling that their trade relationship is facing even greater challenges.

On August 6, 2024, U.S. President Donald Trump signed an executive order imposing an additional 25% tariff on goods exported from India to the United States.

This new measure, along with previously implemented tariffs, raises the overall tariff rate on Indian goods to 50%.

The direct reason for this action is India’s continued importation of oil from Russia, which the U.S. believes undermines the effectiveness of Western sanctions on Russia.

According to the latest data, India’s oil imports from Russia have surged from less than 3% before the Russia-Ukraine conflict to over 40% now.

The U.S. government stated that India’s actions weaken the impact of sanctions imposed on Russia by Western nations, prompting the decision to impose punitive tariffs.

The sudden cancellation of the trade talks with India caught both sides off guard, especially as they had hoped to resolve the dispute through dialogue.

The Indian government had previously stated that it was engaged in comprehensive trade talks with the U.S., describing the U.S. as an “important trade partner.”

However, the suspension of talks has cast doubt on the potential trade agreements the two countries had hoped to finalize between September and October 2024.

Data shows that in the 2024 fiscal year, India’s total exports to the U.S. reached $86.51 billion, accounting for nearly 20% of India’s total exports.

Economists and analysts have warned that if the U.S. continues to impose high tariffs, India’s export growth could face downward pressure of 0.6 to 0.8 percentage points.

If the current 50% tariff remains in place, India’s exports to the U.S. are expected to decrease by 60%, which would have a negative impact of approximately 1% on India’s GDP growth.

As a result, several industries in India are facing unprecedented challenges.

The President of the Indian Steel Association, Upadhyaya, stated that almost all orders from the U.S. have been canceled due to the high tariffs on Indian goods, significantly slowing India’s production progress and causing a pile-up of goods.

Textiles, jewelry, and machinery—key industries—are the primary victims of the tariff impact.

To address this crisis, the Indian government has decided to suspend cotton import tariffs from August 19 to September 30, 2024, to ease pressure on the textile industry.

In addition, the government is considering implementing other economic stimulus measures to mitigate the negative effects of the tariffs.

In response to U.S. accusations and pressure, the Indian government has taken a firm stance.

Foreign Ministry spokesperson Jaishwal clearly stated that the U.S. allegations are unjust and unreasonable, and India will take all necessary measures to protect its national interests.

To cope with the economic impact of the trade conflict, the Indian government has begun to consider a series of reform measures, including reforming the Goods and Services Tax (GST).

The government plans to reduce the existing four-tier tax system to two tiers (5% and 18%) to stimulate economic growth and mitigate the negative impact of the tariffs.

However, the conflicts between the U.S. and India go far beyond the issue of energy.

The U.S. has long sought to pressure India into opening its agricultural markets, particularly in the areas of agricultural products and dairy.

Agriculture is crucial for India, as about 60% of its population depends on it for their livelihood, making it a politically sensitive area for the Modi government.

In the face of U.S. pressure, the Modi government has firmly stated that it will never compromise on the interests of farmers and the welfare of the dairy industry.

As tariff policies evolve, Indian export enterprises are facing increasing challenges.

Many companies had stockpiled goods in anticipation of upcoming orders, even applying for raw material procurement loans and reserving container space, but now they can only watch as goods pile up in warehouses.

For these export enterprises, the sudden tariff changes have not only caused cash flow problems but may also lead to a long-term market trust crisis.

Despite the trade pressures, India’s stock market unexpectedly rebounded by 1.6% during trading on August 27.

Analysts believe that the rebound in the stock market was primarily driven by market expectations of India’s government tax reform plan.

Modi’s tax reform measures are seen as a key step in addressing the trade conflict, and the market generally believes that they will effectively ease the burden on businesses and consumers, promoting economic recovery.

However, as the deadline for the second round of 25% punitive tariffs approaches, the risks facing India’s economy remain significant.

The U.S. tariff policy, particularly its impact on the steel and textile industries, remains a critical factor in whether India’s economy can successfully navigate the current crisis.

The escalation of the U.S.-India trade dispute, especially the cancellation of trade talks with India, highlights deep divisions between the two countries in various areas.

Issues such as energy, agriculture, and market access have made it difficult for both sides to reach consensus at the negotiation table.

While the Indian government has taken a strong stance and plans to address the economic challenges through tax reforms and other measures, India’s economy may still face significant downward pressure in the short term.

As the trade conflict continues to intensify, the future of trade relations between India and the U.S. remains an unresolved question.