Raghuram Rajan, a former governor of the Reserve Bank of India (RBI), voiced grave worries on Tuesday about the anticipated tariff increases by newly appointed US President Donald Trump. The intentions to raise tariffs are a “big source of uncertainty” that might upset the stability of the world economy, according to Rajan.
“I think Trump’s tariff hike threats are a big source of uncertainty and a potential source of disruption for the rest of the world. For the US, I don’t think they will be as beneficial as the administration believes. Partly because goods are made outside the US for a reason — it is cheaper to make them outside,” Raghuram Rajan said on the sidelines of the World Economic Forum (WEF) 2025 in Davos. “Trying to bring them back into the US by putting up tariffs typically doesn’t work,” the former RBI Governor asserted.
Raghuram Rajan used examples of larger economies like China and how they buy goods from smaller nations like Vietnam to lower manufacturing costs to illustrate how the tariff hike will affect the US. “Trying to bring those goods back into the US by imposing tariffs usually doesn’t work as intended. If possible, production will simply move to another location. For example, what was being manufactured in China is now shifted to Vietnam,” Rajan said. “If universal tariffs are implemented, they may prevent imports from other countries, but that would force production to occur in the US at a much higher cost. There’s a reason why China is doing it — it’s cost-effective,” he added.
Rajan went on to discuss the unpredictability of foreign investments in the event that tariffs change suddenly. “There would be great uncertainty about where to invest if tariffs could change overnight. Not just the US, remember there would be retaliatory tariffs as well. I believe that the President has in mind three benefits — it will even the playing field, it will be a source of revenue and a source of jobs,” he added.
Trump, the 47th President of the United States, reaffirmed shortly after taking office that if the Brics countries—including India—took any action to reduce the dollar’s usage in international trade, he would apply 100% import tariffs.