In the looming global trade war unleashed by the United States President Donald Trump with reciprocal tariffs on trade partners, India can be a net gainer despite his outbursts against India’s high tariffs on American goods.
However, it’s going to be a very difficult road ahead given Trump’s give-and-take policy, be it friend or foe. India is certainly a friend and does not figure among the US’s top five trading partners. Yet, Trump has threatened such tariffs on India from April 2. It’s his way of extracting concessions from partners including India in areas like automobiles and intellectual property rights.
US tariffs are generally low. The reciprocal tariff plan unveiled by Trump on February 13, aims to counter perceived trade imbalances by imposing higher tariffs on countries with which America runs a trade deficit. With India-US trade exceeding $125 billion in 2024 and the US emerging India’s largest trade partner, Indian exporters in many sectors face significant risks.
The crux of the matter is that if the US imposes a uniform tariff, Indian exports could face an additional tariff of 4.9%, compared to the current 2.8%
To thrash out a mutually beneficial deal, an Indian team led by commerce and industry minister Piyush Goyal is currently camping in the US to hammer out a bilateral multi-sector trade pact.
Trump has singled out India for charging auto tariffs higher than 100% in his address to the joint session of the US Congress. US wants India to eliminate tariffs on car imports under the proposed trade deal, which will potentially open the doors for US EV major Tesla to import cars from its overseas plants to sell in India instead of setting up one in India. India is reluctant to immediately bring down such duties to zero even as it considers further cuts without taking into consideration domestic industry’s concerns.
Given that stakes are high for a developing country like India, the government should turn reciprocal tariff threat into a positive by seeking greater access to the US market.
If it ends up in a kind of tariff war in which the US hits India with tariffs and India gets back with higher tariffs on the US, that outcome is kind of unfortunate, that will not give the advantage of either side.
For example, the gap is just 1.4% between the weightage average tariffs on textiles and clothing faced by India and the US in each other’s markets. India levies 10.37% on an average while the US levies 8.99%. Textiles and clothing are a labour-intensive sector in India. If the tariffs are matched, India should manage to take concessions for greater access of its products during the bargain. It will be a win-win situation for both. India will become a destination for large global firms and the supply chains built around China could be built around India.
That said, the looming trade war should make Indian industry more competitive and force them to become more efficient, if India were to turn the tariff heat from the US to its advantage.
America’s sweeping tariff hikes on China, Mexico, and Canada could open new avenues for Indian exporters in the world’s largest market. Besides textiles, India could benefit in sectors like engineering, chemicals, and leather. During Trump’s previous term, India emerged as the fourth-largest beneficiary from America’s trade war with China. History may repeat itself.
The US is set to enforce fresh 25% tariffs on imports from Mexico and Canada as well as 20% on Chinese imports, which could shift trade dynamics.
Countries have started imposing counter tariffs on US products. China has announced new tariffs of 10% to 15% on key US exports including chicken, wheat, soybeans, and beef.
So, India has to reach a carefully structured trade deal with the US in March itself to avoid higher American tariffs.
Something similar happened in 2018 when the earlier Trump administration raised duties on steel and aluminium for all countries, including India. This prompted retaliatory duties and WTO disputes. In 2023, both sides ended all seven disputes at the WTO after negotiations.
Experts believe that the tariff threat by the US this time may not be aimed at pushing more goods exports given the limitations on the consumer price front in India, but to extract concessions in other areas, such as intellectual property rights, the government procurement, and financial services.
The US pharma lobby may be pushing Trump to pressure India to accept evergreening of drug patents, which otherwise were expiring, with slight modifications. This would deny Indian pharma companies from producing generic drugs at a fraction of the cost and supplying worldwide. Such concessions could have implications for India’s pharma industry. Similarly, the US could seek to export wheat, seafood and chicken legs to India, which could adversely impact India’s farmers.
When the WTO was established in 1995, developed nations agreed to let developing countries retain higher tariffs in exchange for commitments on Trade-Related Aspects of Intellectual Property Rights (TRIPS), services trade liberalization, and agricultural rules that primarily favoured developed nations.
India should propose a zero-for-zero strategy to the US, eliminating tariffs on 90% of industrial goods mutually to prevent aggressive tariff hikes. If the US rejects India’s offer, India should deny unfair concessions and initiate countermeasures like China.
Given that both India and the US are large democracies with converging areas of interest in strategic areas, trade talks should lead to a positive outcome than the other way round. Till then, all eyes on the trade talks.