Tariffs Hinder India/LatAm Investment

Tariffs between LatAm and India are hindering trade, according to a study by the IDB. India represents only 1% of the region’s overall trade, compared to 10% with China. Reducing tariffs on Indian imports by just 10% would likely increase imports of Indian goods into Chile and Argentina by as much as 36%, the IDB says. India’s average tariff on LatAm agricultural goods is 65%, more than 5 times China’s 12.5% tariff, says the IDB. Even though Latin American tariffs on Indian goods are not as high – reaching 9.8% in the case of manufactured products – they are well above the 4% to 6% OECD range, the study said. A 10% reduction in average tariffs (i.e., reducing a 6% tariff on a good by 0.6%) imposed on Indian products, for example, would likely increase imports of Indian goods by 36% in Chile and Argentina. Cutting transportation costs will also boost trade. A 10% reduction in shipping costs would likely increase trade between Chile and Argentina by 46% and 47%, respectively, according to the IDB. High trade costs are also preventing LatAm from reaping full benefits from its current trade with India and undermining the flow of investments between the 2 regions. Today a 1% growth in China’s gross domestic product generates a 2.4% increase in this region’s exports to China. Meanwhile, a 1% rise in India’s GDP yields just a 1.3% growth in the region’s sales to the country. The study also finds that India could be a significant competitor with LatAm countries. In terms of low-technology goods, India has been boosting exports of textiles and apparel. It has now 3% of the U.S. market for these goods, which is twice that of Brazil’s (1.5%), higher than Central America’s (2.4%), and fast approaching Mexico’s dwindling share (7%).