Daily Current Affairs | April 4 2025

1) Calculation of Reciprocal Tariffs

• Donald Trump introduced the idea of “reciprocal tariffs”, implying the US would match the tariff rates other countries impose on American exports — a tit-for-tat policy.

• But actually, as per USTR memo, tariffs shall be calculated to balance trade deficit, meaning the aim is to eliminate the US’s trade deficit with a country, not just match its tariffs.

• This involves economic modelling, not merely looking at the other country’s tariff rates.

Problems with this

• Wrong Target - A trade deficit is not inherently bad. The goal of trade isn’t to run a balanced account with every country but to enable mutual benefit based on comparative advantage.

• Over-simplified Logic - The model assumes raising tariffs will reduce imports.

• Other Factors Involved - Tariffs are only one part of the equation. Currency manipulation, wages, taxes, and domestic demand also impact trade.

Core Critique of the USTR Memo

• It assumes trade models are broken because trade deficits persist.

• But the real world has structural imbalances, and this simplistic approach won’t fix it.

• Imposing high tariffs might hurt US consumers more than it affects exporters like India.

Consequences

• Trade partners can’t trust the announced tariffs because they may keep changing until the US trade deficit hits zero.

• May lead to a cycle of rising tariffs, hurting global trade and US consumer prices.

• India might face increasing tariffs even if it isn't doing anything wrong — just because the deficit exists.

2) Impact of American Tariffs

• Trump’s “reciprocal tariffs” are not as fair or harmless as they are presented. By targeting countries that have low per capita incomes but run trade surpluses with the US, this policy could:

  • Destabilize vulnerable economies

  • Trigger global inflation

  • Cause economic pain in both the US and abroad

Impact

• On Developing Countries :

  • Many of the countries facing the highest tariffs have low per capita incomes and depend on exports to the US.

  • Tariffs could hurt their economies disproportionately, potentially pushing millions into hardship.

• On USA :

  • Higher tariffs raise input costs and consumer prices, leading to:

    • Higher inflation

    • Slower GDP growth

    • Reduced competitiveness of US firms

    • Possible job losses

Good Politics, but Bad Economics

• Tariffs may be politically effective, playing to voter sentiment about "unfair trade."

• However, economic logic doesn’t support the idea that tariffs will solve trade deficits.

• Real Reasons for Trade Deficits :

  • Currency undervaluation

  • Tax policies

  • Regulatory barriers

  • US domestic demand patterns

  • Offshoring and global supply chains

3) India-Thailand Relations

• India and Thailand met on the sidelines of 6th BIMSTEC Summit in Bangkok.

• The two nations decided to:

  • Strengthen strategic dialogue.

  • Enhance cooperation in areas like defence, trade, culture, education, and security.

  • Upgrade ties to a strategic partnership – a higher level of diplomatic and strategic alignment.

Significance of Thailand

• Thailand has a special place in:

  • India’s Act East Policy (to deepen ties with ASEAN and East Asian nations).

  • The broader Indo-Pacific Vision, especially amid growing geopolitical tensions in the region.

• Geographical location makes Thailand a gateway to ASEAN, enhancing connectivity and regional trade.

Act East Policy

• Launched in 2014 (an upgrade of the earlier 'Look East' Policy).

• Aims to enhance economic, strategic, and cultural ties with Southeast Asia.

• Focus on:

  • Connectivity

  • Trade

  • Defense diplomacy

  • People-to-people ties

Indo-Pacific Vision

• Strategic framework emphasising:

  • Freedom of navigation

  • Rules-based international order

  • Connectivity across the Indian and Pacific Oceans

• Key for countering China's influence and ensuring peace and prosperity in the region.