Relevance: GS Paper II (International Relations: Trade Policy) & GS Paper III (Indian Economy)

Source: The Hindu

1. Context: The End of Global Trade Rules?

Since early 2025, the U.S. government under President Donald Trump has introduced a new way of doing business called Agreements on Reciprocal Trade (ART).

Instead of following the old, slow global rules, the U.S. is telling countries: “If you want to sell to us, you must match our taxes (tariffs) exactly.” These deals are often signed quickly because the U.S. threatens to put very high taxes (up to 50%) on countries that don’t agree. Countries like Malaysia, Argentina, and Bangladesh have already signed these.

2. Understanding the Difference: ART vs. Traditional Trade

To understand why this is a big deal, we need to see how it differs from the traditional way of trading:

Feature	Old Way (WTO / FTAs)	New Way (ART)
Philosophy	“Let’s help each other grow.”	“America First.”
Rules	Follows World Trade Organization (WTO) laws.	Ignores the WTO; strictly bilateral (one-on-one).
Taxes	Flexible; poor countries can have lower taxes.	Strict Reciprocity: Both must charge the same tax.
Scrutiny	Other countries can check if the deal is fair.	Hidden; no one else can check or complain.

3. Why are ARTs Controversial?

Experts are worried about these “Reciprocal Trade” deals for a few reasons:

• One-Sided Deals: These agreements often have “Imperial” clauses. For example, if the U.S. decides to block certain products for its security, the partner country must also block them.
• Loss of Digital Control: Most ARTs ban countries from taxing digital services (like Netflix or Google). This makes it hard for a country like India to collect Digital Tax (Equalisation Levy).
• Breaking the WTO: The WTO was made so that no one country could bully another. ARTs bypass the WTO, leading to a system where “might is right.”

4. What This Means for India

In February 2026, India and the U.S. signed an Interim Agreement on Reciprocal Trade.

• The Good News: The U.S. reduced its “penalty tax” on Indian goods from 25% to 18%.
• The Cost: In return, India had to agree to negotiate on Digital Trade and has reportedly agreed to reduce its oil imports from Russia.

Important Terms Simplified

1. Reciprocity: The “Tit-for-Tat” rule. If you charge me ₹10, I will charge you exactly ₹10.
2. Multilateralism: When all countries (like at the WTO) agree on one set of rules.
3. Tariff: A tax on goods coming from another country.
4. Strategic Autonomy: A country’s power to make its own choices (like who to buy oil from) without being pressured by a superpower.

UPSC Value Box

Why this matters for the Exam:

• Shift in Power: We are moving from a “Rules-Based” world to a “Power-Based” world.
• Digital Sovereignty: India needs money from digital taxes to build its own infrastructure. Giving this up in an ART deal is a big risk.

The Key Challenge:

India needs the U.S. market for its exports (IT, Textiles, Pharma), but it cannot give up its right to make its own laws. This is the ultimate “tightrope walk” for Indian diplomats.

Summary

Agreements on Reciprocal Trade (ART) are the new “hard-bargain” deals of the Trump era. They ignore global rules and focus on “matching taxes.” For India, these deals offer a chance to keep selling to the U.S., but they come with heavy demands on our Digital Laws and Foreign Policy.

One Line Wrap: Global trade is changing from a “fair-play” game to a “hard-negotiation” battle where the biggest economy sets the rules.

UPSC Mains Question

“The emergence of Agreements on Reciprocal Trade (ART) represents a shift from multilateralism to ‘power-based’ trade.” Analyze the challenges this poses for India’s strategic autonomy. (10 Marks, 150 Words)

Model Hints

• Intro: Define ART as a new bilateral trade model focused on exact tax matching, moving away from WTO rules.
• Body: * Discuss how it pressures India on Digital Taxes and Foreign Policy (Russia oil).
  • Mention that it bypasses the MFN (Most Favoured Nation) rule of global trade.
• Conclusion: India must negotiate a “Balanced Deal” that protects its local businesses while keeping the U.S. market open.

Would you like me to analyze how these new trade rules might specifically affect India’s IT sector in the coming years?