The former RBI Governor emphasized, “Efforts to repatriate production to the US through tariffs generally do not yield the desired results.”

Rajan elaborated on the implications of the tariff increases for the US economy, referencing larger economies such as China, which import goods from smaller nations like Vietnam to minimize manufacturing expenses.

He remarked, “Imposing tariffs in an attempt to bring those goods back to the US typically fails to achieve its objectives. If feasible, production will simply relocate elsewhere. For instance, manufacturing that once took place in China has now transitioned to Vietnam.”

He further noted, “Should universal tariffs be enacted, they may restrict imports from other nations, but this would compel production to occur in the US at significantly higher costs. There is a rationale behind China’s approach—it is economically advantageous.”

In addition, Rajan highlighted the potential volatility in foreign investments if tariffs were subject to sudden changes. 

He stated, “There would be considerable uncertainty regarding investment decisions if tariffs could fluctuate unexpectedly. It is important to remember that retaliatory tariffs could also come into play. I believe the President envisions three primary benefits: leveling the playing field, generating revenue, and creating jobs.”

Shortly after assuming office, Trump, the 47th President of the United States, emphasized his intention to implement 100 percent import tariffs on the Brics nations, including India, should they take any actions to reduce the use of the dollar in international trade.