Trump’s Tariff Gambit – What It Could Mean for India?
25% Tariff – Indian enters the trumpian world! Trump does what Trump wants. The question is, what will India do now?
Introduction
As Donald Trump gains momentum in his bid for a second term in the White House, investors and policymakers across the globe are bracing for a potential resurgence of protectionist trade policies. Among the countries that should be paying particular attention is India. The prospect of new tariffs, especially Trump’s pet idea of reciprocal tariffs, is looming large over Indo-US trade relations. While much of the world is focused on what Trump’s economic nationalism might mean for China, Mexico, or Europe, India has quietly emerged as one of the United States’ top trading partners. In many ways, that’s good news. But in a Trumpian world, where trade surpluses are seen as an unfair advantage and tariff symmetry is demanded at all costs, India might find itself in a vulnerable position. This article delves into the implications of Trump’s tariff rhetoric for India, going beyond the obvious trade numbers to assess the underlying economic risks, strategic responses, and the opportunities that might emerge in the turbulence.
Is India-US Trade Imbalanced?
Over the past decade, trade between India and the United States has grown significantly. The US overtook China to become India’s largest export destination in FY 2023, with goods exports reaching approximately USD 78.5 billion. Imports from the US, however, lagged far behind, leading to a trade surplus of nearly USD 45 billion in India’s favour. This imbalance is precisely the kind of dynamic that Trump has railed against in the past. During his first term, he labelled India the Tariff King, criticising the country’s high import duties on American products ranging from motorcycles to medical devices. If elected again, he has made it clear that countries imposing higher tariffs than the US should expect equivalent tariffs in return, a thinly veiled warning to India.
How is India Uniquely Exposed?
Tariff Structures are Asymmetrical
India maintains higher average tariff rates across a wide range of goods, a legacy of its import-substitution industrial policy from earlier decades. While the country has liberalised over time, sectors such as automobiles, food processing, electronics, and textiles still see high import duties, in some cases exceeding 30%. In contrast, American tariffs are generally lower, averaging around 2-3% for many categories. Trump’s principle of reciprocal tariffs would, therefore, result in a disproportionate hit to Indian exports, simply because the baseline from which US tariffs would be raised is much lower.
India has Limited Retaliation Power
Unlike China or the EU, which have significant economic leverage over the United States due to large bilateral trade volumes and strategic industries, India lacks equivalent countermeasures. US exports to India constitute a small fraction, around 2% of total American exports. While India is a buyer of American defence equipment and energy, including LNG and crude oil, these sectors are unlikely to sway US trade policy decisively. In a full-blown tariff escalation, India would have few tools to retaliate meaningfully.
Sectoral Dependence on US Markets
Some of India’s most vital export industries, pharmaceuticals, textiles, jewellery, and IT services, are deeply integrated into the US economy. For instance, nearly a third of India’s generic pharmaceutical exports are sold in the United States. Similarly, the US accounts for a significant portion of India’s textile and apparel exports, and around 60% of the revenue for top Indian IT firms. Any targeted US tariffs or regulatory restrictions in these areas could cause sector-specific shocks, triggering job losses, investment delays, and operational reorientation.
How has India reacted?
The Indian Government has recognised this risk and has quietly adjusted its approach. India has reduced import duties on high-profile items like Harley-Davidson motorcycles, an issue Trump previously spotlighted. This gesture, although symbolic, indicates India’s attempt to signal flexibility. Indian oil and gas majors have been deepening their engagement with US suppliers. Deals to import more American LNG and crude not only address India’s energy needs but also help narrow the trade gap and build goodwill in Washington. For years, India remained cautious on FTAs. Now, that stance has reversed. New agreements with countries like Australia, UAE, the UK, and ongoing talks with the EU signal India’s urgency to diversify its export markets in case the US route becomes less viable. From defence partnerships to semiconductor investments, India is seeking to embed itself in American supply chains in a way that makes tariffs costlier for US businesses. The strategic bet is – if US companies suffer from higher tariffs on Indian goods and services, they may lobby against them.
What to expect next?
The Optimistic Scenario
Trump’s history reveals a preference for bilateral deals. If India plays its cards right, leveraging defence purchases, energy imports, and its strategic importance in counterbalancing China, it might negotiate exemptions or delayed tariffs on key exports. India could emerge as a “preferred partner” in a reconfigured global trade map, especially if Trump intensifies a decoupling with China. In this case, the Indian economy could benefit as global supply chains reorient. Sectors like electronics manufacturing, pharmaceuticals, and speciality chemicals could see increased investment flows and export opportunities.
The Middle Path
In this scenario, India is not singled out but is hit alongside other emerging economies. Tariffs rise, but in a broad-brush manner. The damage, though real, is not catastrophic. India counters this through currency depreciation, support for export sectors, and rapid trade diversification. Exporters may need to absorb lower margins, but the economy stays on track overall. Sectors that rely heavily on the US, like textiles and IT, would feel the pinch, but rising demand in Europe, the Middle East, and East Asia might soften the blow.
The Worst-Case Scenario
If Trump revives his 2018-style rhetoric, with India as a tariff king and primary target, the result could be a sharp, focused tariff assault. Key export industries such as pharmaceuticals, gems and jewellery, auto components, and garments may face steep duties. Simultaneously, visa restrictions could hit the IT services industry, particularly the H-1B pipeline. Such a confrontation would cause significant short-term disruption. Exporters would scramble to find alternative markets or adjust their cost structures. Investment sentiment could weaken, especially among export-oriented firms. There could also be second-order effects. For example, if China responds by devaluing the yuan as it did during the US-China trade war, it could lead to a flood of cheaper Chinese goods into India, hurting domestic manufacturers.
Conclusion
Paradoxically, Trump’s protectionist rhetoric could also catalyse structural reform in India. Faced with declining export access, India may double down on import substitution and Make-in-India-style initiatives, especially in electronics, semiconductors, and defence. FTAs with regions such as the EU, Africa, and ASEAN can help hedge against overdependence on any one market. The US market has long dominated India’s IT and business services exports. A push to expand into non-English-speaking markets, including Latin America, Japan, and continental Europe, could emerge. A more flexible exchange rate regime could make Indian exports more competitive in a challenging trade environment.
The current trade relationship with the United States is both a strength and a vulnerability. It reflects India’s rising stature in global commerce but also exposes its asymmetric dependencies. India’s challenge lies in navigating the fine line between appeasing American concerns and safeguarding its long-term trade interests. While tariffs may be imposed in the name of fairness, their real-world impact will be anything but even. Indian policymakers and investors must brace for volatility, hedge against geopolitical shocks, and invest in resilience, both economic and diplomatic. Whether India emerges bruised or emboldened from Trump’s tariff wars will depend not just on how hard the blows land, but on how deftly we dodge, and what we build in their aftermath.
References
- Politico – Trump won’t let other countries score big ‘wins’ in trade talks. Both sides could lose.
- IndiaBiz – Bilateral trade between India and the US reaches USD 128.55 billion in FY23
- Matrubhumi – Why Trump’s ‘Reciprocal tariffs’ are back and why India’s now paying the price
- India Times – Donald Trump’s India tariffs set to hit US shoppers hard
- India Today – Will Trump’s reciprocal tariffs hit India hard? Here’s all you need to know
- Image by vectorjuice on Freepik
