What’s a ‘secondary tariff’ like the one Trump imposed on India?

WASHINGTON – In his second term as US president, Mr Donald Trump has used tariffs as a blanket solution to pursue a wide range of goals: increasing domestic manufacturing and foreign market access, boosting federal revenue, and even punishing the government of Brazil for prosecuting his political ally, former president Jair Bolsonaro.

Now he has deployed a tool he calls a “secondary tariff” in an effort to get countries to distance themselves from US adversaries.

On Aug 6, Mr Trump announced that such

a tariff on imports from India

would take effect in 21 days. On top of an existing 25 per cent levy on goods from India, he imposed an additional 25 per cent tariff to penalise India for buying oil from Russia. 

What is Trump’s concept of ‘secondary tariffs’? 

The idea behind “secondary tariffs” is to use a weapon against one country to penalise or try to influence a different country. The concept is similar to the one behind so-called secondary sanctions.

How are ‘secondary tariffs’ and secondary sanctions different?

The US uses secondary sanctions to multiply the effect of its primary sanctions on countries or entities. Secondary sanctions target commercial activity involving a party under primary sanctions but occurring outside of US legal jurisdiction. They are meant to force companies, banks and individuals to make a tough choice: Continue doing business with the sanctioned entity or with the US, but not both. 

Unlike primary sanctions, which can be enforced by fines and the seizure of US-held assets, secondary sanctions rely on the centrality of the US financial system to the world economy and the widespread use of the US dollar as the global reserve currency to work.

A company or individual who violates a secondary sanction could be hit by US export controls or be placed on the Treasury Department’s Specially Designated Nationals and Blocked Persons List, which would prevent Americans from doing business with it.

The “secondary tariff” Mr Trump announced on imports from India is not aimed at magnifying the impact of a primary tariff, as the name might suggest. US tariffs on energy from Russia are irrelevant, given that such imports were banned in 2022 after Moscow’s full-scale invasion of Ukraine.

Instead, the extra 25 per cent tariff on imports from India appears to be aimed at compelling its government to adopt a similar ban, with the larger goal of pushing Russia to stop its war. 

In March, Mr Trump

created a mechanism for imposing tariffs

on imports from countries that buy oil from Venezuela, whose regime, he said, poses a threat to US national security.

How would the US know who other countries buy oil from?

Ships on the water have identifying transponders that allow third parties to track their location in real time via satellite. That enables analysts in and out of government to, for example, follow oil tankers loading in Russia and unloading in India. Bloomberg