As Trump launches the tariff war, how can India safeguard its interests?

With Trump enforcing reciprocal tariffs, India faces trade challenges. Exploring new markets, finalising FTAs, and boosting manufacturing could help counter the impact

The United States has announced it will impose reciprocal tariffs on Indian imports starting April 2, a move that could reshape trade dynamics between the two economies.

 

The policy, outlined by President Donald Trump, aims to mirror India’s tariff structure on US exports, applying equivalent duties on Indian goods entering the US.

 

A key concern is India’s high tariffs on automobiles, chemicals, and electronics, with auto tariffs exceeding 100 per cent on US vehicles. Under the new policy, the US will impose similar tariffs on Indian auto imports. This could disrupt bilateral trade worth $129.2 billion and pose challenges for Indian exporters, who rely heavily on the US market.

 

 

India-US trade in 2024

 

The US is India’s largest trading partner, with total goods trade reaching $129.2 billion in 2024, according to the Observatory for Economic Complexity (OEC).

 

• US exports to India: $41.8 billion, a 3.4 per cent increase from 2023

 

• US imports from India: $87.4 billion, a 4.5 per cent rise

 

• Trade deficit: $45.7 billion, with Washington aiming to address this imbalance

 

Among India’s top exports to the US, packaged medicines led at $10.4 billion, followed by diamonds ($7.61 billion), broadcasting equipment ($6.18 billion), and petroleum products ($522 million as of November 2024).

 

Meanwhile, key US exports to India included crude petroleum ($5.5 billion), coal briquettes ($4.61 billion), and gas turbines ($2.39 billion). With 17.7 per cent of India’s total exports heading to the US, these tariffs could have a substantial impact on critical industries.

 

India’s tariff policies and the US response

 

Over the years, India’s tariff structure has seen fluctuations, with a protectionist tilt. While US tariffs on Indian goods remained relatively stable—rising from 2.72 per cent in 2018 to 3.91 per cent in 2021 before slightly declining to 3.83 per cent in 2022—India’s tariffs on US goods increased more sharply, from 11.59 per cent in 2018 to 15.30 per cent in 2022.

 

President Trump has cited this disparity as justification for Washington’s reciprocal tariff policy, stating that the US would no longer tolerate India’s high tariffs without mirroring them.

 

How can India offset the impact of reciprocal tariffs?

 

With higher US tariffs affecting Indian exports, experts suggest that India must diversify its trade avenues.

 

• Strengthening regional trade alliances: India could benefit from agreements like the Regional Comprehensive Economic Partnership (RCEP), which would provide greater access to the Asian market. Expanding trade with African nations and Latin America could also offer alternative export destinations.

 

• Finalising free trade agreements (FTAs): India is in talks with the European Union (EU) and the United Kingdom (UK) to secure preferential market access. At the same time, accelerating negotiations with Canada and Australia would help India reduce reliance on the US.

 

• Boosting domestic manufacturing: Initiatives like ‘Make in India’ aim to reduce import dependency and strengthen local production, particularly in electronics, semiconductors, and automobiles. The 2025 Budget has streamlined tariff structures to improve the competitiveness of Indian exports.

 

• Capitalising on the US-China trade war: With global supply chains shifting, India can position itself as an alternative manufacturing hub, benefiting from companies looking to reduce reliance on China.

 

• Improving trade infrastructure: The Bharat Trade Net (BTN), a single-window trade documentation system, could enhance efficiency and attract global investors.

 

Can India’s global alliances counterbalance US tariffs?

 

India is already part of multiple global alliances that exclude the US, providing alternative trade expansion opportunities.

 

• BRICS (Brazil, Russia, India, China, South Africa): Trade among BRICS nations has grown at an annual rate of 10.7 per cent—three times faster than the global trade average. Collectively, BRICS nations account for over a quarter of global GDP and 42 per cent of the world’s population, making it a critical economic bloc.

 

• Shanghai Cooperation Organisation (SCO): Trade within the SCO reached approximately $650 billion in 2023, highlighting increasing economic integration. India’s participation enhances trade with China, Russia, and Central Asian nations.

 

• ASEAN and Indo-Pacific alliances: India is strengthening ties with the Indo-Pacific Economic Framework (IPEF) and ASEAN to deepen economic cooperation with Southeast Asia. Meanwhile, trade with the African Union and Latin America is growing, with Indian exports in pharmaceuticals, IT services, and infrastructure projects seeing an uptick.

 

• Strategic supply chain alliances: India’s partnerships with Quad members (Japan, Australia, US) and initiatives like the Mineral Security Partnership could help secure critical raw materials for domestic industries.

 

Expanding trade through bilateral agreements

 

To mitigate the impact of US tariffs, India is expanding its trade reach across multiple regions.

 

• EU and UK FTAs: India’s trade agreements with the EU and UK are in the final stages, aiming to grant preferential trade terms.

 

• Middle East and North Africa (MENA): The UAE, Saudi Arabia, and Egypt are becoming key markets for Indian energy, textiles, and electronics exports.

 

• ASEAN-India Free Trade Agreement: This agreement streamlines trade with Southeast Asia, helping India increase its export footprint.

 

• Latin America and Africa: India is deepening trade ties with Brazil and Argentina, focusing on exports of automotive components, agricultural products, and pharmaceuticals.

 

• Australia and New Zealand: Ongoing negotiations for Comprehensive Economic Cooperation Agreements (CECAs) are expected to further trade diversification.

 

Conclusion

 

India is at a critical juncture as the US imposes reciprocal tariffs on its exports. By leveraging existing trade alliances, finalising new agreements, and strengthening domestic manufacturing, India has the opportunity to turn these challenges into an impetus for greater economic self-reliance and global competitiveness.