Raghuram Rajan on Trump’s Tariffs: A Self-Goal with Adverse Effects on US Economy
Former RBI Governor’s Take on New Tariffs
Former Reserve Bank of India (RBI) governor Raghuram Rajan criticized the Trump administration’s new reciprocal tariffs on about 60 countries. He called it a “self-goal” that will mainly hurt the US economy in the short run. Rajan stated that the impact on India would be relatively “smaller”.
Trump’s Tariff Announcement
- US President Donald Trump announced additional ad-valorem duties ranging from 10% to 50% on imports from all trading partners.
- The baseline 10% duty will take effect on April 5, followed by a 27% duty on April 9.
- Some sectors, including pharmaceuticals, semiconductors, and energy products, are exempt.
“Let us recognize that in the short run, this will adversely affect the US economy first and foremost – it is a self-goal as footballers would say,” Rajan told PTI.
Impact on India and Other Countries
“Coming to the effects on other countries, the direct effect of any tariff on India’s exports will be to raise prices for US consumers, reducing their demand, and hence Indian growth,” Rajan explained.
He added that because the tariffs apply to multiple countries, the impact on India will not be as severe. “Of course, to the extent that the US has applied tariffs on other countries also, and India is competing with producers from those countries, the overall effect will be smaller than if the tariffs had been applied only on India – since US consumers will not be able to substitute away to non-tariffed producers.”
Trump’s Long-Term Intent and India’s Response
Rajan commented on Trump’s broader economic strategy: “The long-term intent of Trump is to increase US production, but, even if feasible, that will take a long time to set up.”
On how India should respond, Rajan suggested reducing domestic tariffs to boost trade and competitiveness. “We can certainly bring down the tariffs we have been raising – that would be beneficial to India regardless of whether it will help us negotiate down US tariffs.”
He also emphasized the need for a smarter trade strategy: “More generally, India needs to understand the world has become much more protectionist, so we have to be more clever about trade.” He urged India to strengthen ties with Asean, Japan, Africa, and Europe while also focusing on regional cooperation. “That means overcoming political differences. As the world breaks up into regional blocks, South Asia should not be the odd region out.”
Trump’s Liberation Day Announcement
Trump, announcing the tariffs from the White House Rose Garden, framed them as a major step to revive American industry. “This is Liberation Day, a long-awaited moment. April 2, 2025, will forever be remembered as the day American industry was reborn, the day America’s destiny was reclaimed, and the day that we began to make America wealthy again. We are going to make it wealthy, good, and wealthy.”
Holding up a chart listing tariff disparities, Trump pointed out: “The US charges other countries only a 2.4 per cent tariff on motorcycles, but Thailand and others are charging much higher rates, like 60 per cent, India 70 per cent, Vietnam 75 per cent, and others charge even higher rates.”
