Tariff mayhem ! ~ Insurance relevance

International Markets on edge as Trump and China exchange Tariff threats – is the global headline of the day !!  Tariff – what  !! – is that good or bad could be the natural Q but one must add – good for whom ??  tariff mayhem has undoubtedly stirred chaos across the globe. With a day left before they are imposed, a series of conflicts are emerging, ranging from a trade war to war of words. 

The word Tariff could mean many things – primarily it is a tax that is levied – it could also mean a list of prices ! (as Insurers we are more familiar with this usage of Tariff) 

Not long ago, there were Tariff for every class of business (most Tariffed and some non-Tariff) – Motor, Fire, Workmen Compensation, Marine Hull, Marine Cargo, Personal Accident and more were tariff governed.  In olden days, life of Motor Insurer was spent more on reading and interpreting the provisions of “AIMT” -  wonder what ? – All India Motor Tariff, the ultimate smrithi handed by Tariff Advisory Committee laying down rules, regulations, rates, terms and conditions in accordance with the provisions of part IIB of Insurance Act 1938.  The AIMT was revised from time to time – remember the big black book, it undergoing revisions in 1989 and present one coming into vogue since  30^th June 2002. (likely that you had not joined Insurance industry by these dates !)   

Then there was the more challenging ‘Fire Tariff’ - Indian market now predominantly follows the “All India Fire Tariff” effective 2001. The Tariff has been subjected to revisions and amendments from time to time. During 1980s, the Fire Tariff presented bewildering demonic proportions being of big volume and too difficult even for the Insurers. During those days, there were restrictions of ‘night work’, usage of petrol / flammable material, material in open and for each of these there were restrictions by way of warranties and additional premium. The Tariff was largely simplified and released with a new look effective April 1987 when there were three variants Fire Policy A, B & C.  

Moving away from Insurance, a  tariff is a duty (a tax) imposed by a national government, customs territory, or supranational union on imports (or, exceptionally, exports) of goods. Besides being a source of revenue, import duties can also be a form of regulation of foreign trade and policy that burden foreign products to encourage or safeguard domestic industry. 'Protective tariffs' are among the most widely used instruments of protectionism, along with import quotas and export quotas and other non-tariff barriers to trade. 

US tariffs are taxes imposed by the US government on imported goods from other countries. They're used to regulate international trade, protect domestic industries, and generate revenue. Some countries have preferential tariff rates due to free trade agreements (FTAs) with the US. These agreements reduce or eliminate tariffs on certain goods, making them more competitive in the market. 

First start reading what Donald Trump earlier said :  ‘ There is no lipstick that can make the pig that is tariffs ‘beautiful’!!    The defensible case for tariffs is if not present, such things would  diminish the ability of the domestic economy to produce items essential for the national defense or to preserve national security.  Another  is - the industry to be protected is of potentially enormous national value because the broad benefits of its growth would far exceed the cost of the tariffs. 

Tariffs have come to stay and would remain forever !!  -  China’s government says it will “fight to the end” if the US continues to escalate the trade war, after Donald Trump threatened huge additional tariffs in response to China’s retaliatory measures.  On Tuesday, China’s commerce ministry accused the US of “blackmail” and said the US president’s threats of additional 50% tariffs if Beijing did not reverse its own 34% reciprocal tariff were a “mistake on top of a mistake”.  It vowed to “resolutely take countermeasures”, adding: “China will fight to the end if the US side is bent on going down the wrong path.” 

Asian markets appeared to improve slightly in early trading, a day after torrid day on the global markets that prompted the billionaire investor Bill Ackman, one of the US president’s backers in the 2024 race for the White House, to call for a moratorium. 

Tuesday’s response from Beijing is the latest in a worsening tit-for-tat between the two countries. Last week Trump announced a swathe of tariffs ranging from 10%-50% against US trading partners to come into effect.  He placed a 34% tariff on imports from China – in addition to a previous 20% levy. Beijing then retaliated with a reciprocal 34% tariff on all US imports. That prompted Trump on Monday to threaten an additional 50% tariff on to Chinese imports if Beijing did not reverse theirs. 

“If China does not withdraw its 34% increase above their already long term trading abuses by tomorrow, April 8th, 2025, the United States will impose additional tariffs on China of 50%, effective April 9th,” Trump wrote on Truth Social. “Additionally, all talks with China concerning their requested meetings with us will be terminated!” 

Taiwan’s foreign minister, Lin Chia-lung, has said it can have negotiations with the US at any time over tariffs, as the island’s stock market steadied after plunging on Monday. Taiwan – a major semiconductor producer – was singled out by Donald Trump as among the US trading partners with one of the highest trade surpluses with the country and was hit with a 32% duty.   Taiwan’s benchmark stock index, which logged its worst fall ever on Monday, down almost 10%, fell another 4% on Tuesday morning to its lowest level in 14 months. Shares in TSMC , the world’s largest contract chipmaker, dropped around 4%. 

Back home, Indian stock market too turned very volatile - as Indian equity markets panic turn and exporters brace for US President Donald Trump's "Liberation Day" tariffs to kick in, the question is - will it be as harsh as feared? Regardless of gloom forecasters, pragmatism is the key.   

The worst impact could be  felt by the electronics, gems, and jewellery sectors, experts fear. But that impact will be limited and short-term because of the country's moderate share in global exports. The impact of the tariffs on competing economies is another aspect that may end up benefiting India, sources said. India is negotiating with seven countries for a free trade agreement and trade talks will soon begin with Bahrain and Qatar, sources pointed out, suggesting that such deals would resolve the tariff tangle. New Delhi will also find new markets for its marine and jewellery products and other sectors impacted by the tariffs, they said. 

India's share in global exports has doubled between 2005 and 2023. It stood at 2.4 per cent in 2023, according to a report by the National Stock Exchange (NSE). The share of merchandise exports was 1.8 per cent and that of services export was 4.3 per cent.   Higher tariffs may put Vietnam and Thailand on the back foot and India - with initiatives like the Production-Linked Incentive (PLI) scheme - may help the domestic electronics manufacturers better position themselves in the global markets, it is stated.

 

In life, one needs abundance of wealth, food !!  -  even when leaves fall and Tree has nothing there could be fruits aplenty just as this squirrel discovered on this papal tree.  For Insurers, Tariff regime was good – when it was withdrawn, it was mayhem and prices fell down the abysmal levels (so also the claim ratio getting berserk)

 
Regards – S Sampathkumar
8.4.2025