The Trump Tariff Tsunami: As the world stands at the brink of a new trade era, India finds itself amid an intensifying trade war that could redefine its future economic trajectory. The ripples are already hurting the bull in Dalal Street. As Donald Trump returns, the spectre of his tariff-related upheaval hangs heavily over countries imposing steeper taxes on American products. Set to take effect on April 2, 2025, Trump’s tariffs could throw global trade into disarray and leave India’s major export industries feeling the strain. However, while India faces considerable challenges, the nation employs a calculated, strategic approach to turn these trade challenges into opportunities for sustained economic progress and boost the Viksit Bharat ambition.
Trump’s Stance on India’s Trade Tariffs
President Trump has consistently criticised India’s trade practices, particularly its high tariff barriers. In a recent statement, he remarked, “India is a very high tariff nation.” The US is India’s biggest trading partner, with total trade reaching $129.2 billion in 2024, according to the Observatory for Economic Complexity (OEC). The United States has a $45.6 billion trade deficit with India, which has drawn adverse comments from the US administration. According to World Trade Organisation data, the US trade-weighted average tariff rate stands at about 2.2%, whereas India’s is at 12%.
Starting April 2, the US will impose new rates of reciprocal tariffs to tackle what is perceived as imbalanced trade practices. “India, China, and South Korea impose higher tariffs on US goods, which is unfair,” Trump said. “On April 2, reciprocal tariffs kick in. Whatever they tax us, we will tax them.” The US Commerce Secretary too has highlighted that India needs to reduce its steep tariffs for more equitable trade relations. He highlighted the possibility of a Bilateral Trade Agreement (BTA) that could boost and solidify trade between India and the US by opening up more markets, lowering tariffs and removing non-tariff obstacles, as a way to improve its “special relationship” with the United States. He added that India needs to reduce defence purchases from Russia and buy more defence products from the US, lower its high tariffs as part of a bilateral deal and open its agriculture market for American firms.
The Trade War Fallout: Indian Sectors at Risk
President Trump’s proposed reciprocal tariffs are causing quite a stir in several countries, including India. Certain industries are bracing for the impact of these heightened duties. The automotive sector is particularly at risk due to escalating tariffs on exports to the US that could hurt their ability to compete on price in the American market. India slaps tariffs as high as 100% on imported cars – something President Trump has repeatedly called out as being unfairly steep.
The United States is India’s biggest trading partner, with total trade reaching $129.2 billion in 2024. However, the United States has a $45.6 billion trade deficit with India, drawing adverse comments from the US administration. President Trump has remarked that India is a ‘very high tariff nation’
Trump’s threat of increasing tariffs also challenges the medical and pharmaceutical industries. India is a major supplier of generic drugs and medical equipment to the US, which means these sectors are especially susceptible to the impact of tariffs. Businesses in these fields may see their export costs rise, possibly resulting in lower revenues. To cope with these higher costs, Indian companies might have to either bear the additional expenses themselves, lowering profits or explore other markets outside the US.
Similarly, Indian textiles, gems and jewellery sectors are again a major export sector to the US market contributing significantly to the export revenue for India. In 2024, India shipped around $8.5 billion worth of gems and jewellery to the US, and any increase in tariffs in these areas could shrink this trade and affect the export revenue.
India’s Strategic Response: A Focus on Diplomacy and Trade Agreements
India’s strategic response to these challenges is multi-pronged based on diplomacy, diversification and strategic economic planning. The heads of the two countries have engaged in discussions to address tariff disputes and explore avenues to double bilateral trade to $500 billion by 2030. As part of these negotiations, India has agreed to reduce tariffs on certain US products and increase imports of US energy and defence equipment with a long-term perspective. India’s commerce and finance ministers have also engaged in trade talks with their US counterparts to arrive at a mutually acceptable arrangement. This may result in cutting tariffs and other trade obstacles, and yet opening up more opportunities in big sectors like energy, defence, technology, and medical supplies.
India is working to address these challenges and create a more equal economic partnership by talking with the United States about a mutually acceptable trade deal. The goal is to make agreements that help both countries, lower trade barriers, and open up markets in important areas like energy, defence, technology, and medical supplies.
Amid the US-China trade war, India can position itself as an alternative manufacturing hub, benefiting from companies looking to reduce reliance on China. This needs policy reforms and ‘ease of doing business’ to attract the global market. India must also push domestic manufacturing and production
India is also giving significant perks to US businesses, especially those in advanced technology. The nation is suggesting tax breaks and land availability in specific states, hoping to be seen as a strong manufacturing rival to China globally. By providing these production-linked incentives (PLIs), India is actively trying to bring in more US investments, especially in semiconductors, electronics, aircraft components, and renewable energy.
Leveraging Alternatives for National Interests
Although the US tariff increase poses challenges, it also offers India the opportunity to diversify its trade in the global markets and reduce dependency on the US market. India should strengthen regional trade relationships, such as the Regional Comprehensive Economic Partnership (RCEP), which would open up more avenues to the Asian market. Increasing trade with African countries and Latin America will also offer alternatives for export markets. India is in talks with the European Union (EU), Australia and the United Kingdom (UK) to expand market access. At the same time, India must give its domestic manufacturing a push to bolster local production through “Make in India” efforts, especially in areas like electronics, semiconductors, and automobiles. Further with the US-China trade war, India can favourably position itself as an alternative manufacturing hub, benefiting from companies looking to reduce reliance on China. This would require expeditious policy reforms and ease of doing business to attract the global market.
India, as part of multiple global alliances, must leverage alternative trade expansion opportunities in a balanced manner. The BRICS nations (Brazil, Russia, India, China, and South Africa), the Shanghai Cooperation Organisation (SCO), the Indo-Pacific Economic Framework (IPEF), and ASEAN all present avenues for strengthening economic collaboration. The impetus must continue to intensify trade with the African Union and Latin America, particularly in pharmaceuticals, IT services, and infrastructure development.
For India, the BRICS, SCO, Indo-Pacific Economic Framework, and ASEAN present avenues for strengthening economic collaboration. The impetus must continue to intensify trade with the African Union and Latin America, particularly in pharmaceuticals, IT services, and infrastructure development
At the bilateral level, trade ties are also expanding across different regions. Trade agreements between India, the EU and the UK are on the upbeat. The UAE, Saudi Arabia, and Egypt are emerging as crucial markets for India’s exports in energy, textiles, and electronics. The ASEAN-India Free Trade Agreement is proving helpful for India to increase its export presence in Southeast Asia. India is also bolstering its trade relationships with Brazil and Argentina, emphasising exports such as automotive parts, agricultural goods, and pharmaceuticals. Presently, negotiations are underway for Comprehensive Economic Cooperation Agreements (CECAs) with Australia and New Zealand, which are anticipated to further lead to trade diversification.
Conclusion
Despite these challenges and opportunities, India’s leadership must engage diplomatically with the US, weighing strategic concessions and expanding trade that could benefit both countries without jeopardising domestic industries or being vulnerable to leverage as a result of dependency. President Trump’s tariffs might cause some short-term instability, but India must focus on creating economic resilience and sustained growth trajectory through a long-term strategy by diversifying multilateral and bilateral partnerships, investing in critical areas to attract global markets while safeguarding domestic interest, and leveraging strategic partnerships with the US. The regional and global geopolitics are indicative of a time when the strategic interests of India and the United States converge and both need each other more than ever before.
The author, a PVSM, AVSM, VSM has had an illustrious career spanning nearly four decades. A distinguished Armoured Corps officer, he has served in various prestigious staff and command appointments including Commander Independent Armoured Brigade, ADG PP, GOC Armoured Division and GOC Strike 1. The officer retired as DG Mechanised Forces in December 2017 during which he was the architect to initiate process for reintroduction of Light Tank and Chairman on the study on C5ISR for Indian Army. Subsequently he was Consultant MoD/OFB from 2018 to 2020. He is also a reputed defence analyst, a motivational speaker and prolific writer on matters of military, defence technology and national security. The views expressed are personal and do not necessarily carry the views of Raksha Anirveda
