Stakes for India and the US are very high, need a win-win trade deal

Swami Vivekananda said it best: “We enter the world like a gymnasium, to make ourselves strong.” But the world trading system — under Donald Trump’s whimsical tariffs — is beginning to resemble a wrestling mat rather than a gymnasium. Mr Trump has managed to swing trade deals in his favour by negotiating with each country individually. Even the 27 collective countries of the European Union — despite having a much larger market than the United States — have caved in to his pressure. So far, only China has stood up to him, leveraging its monopoly in rare earths. 

India, whose prospects of a trade deal with the US looked promising after Prime Minister Narendra Modi’s rushed visit to the White House in February, is now facing  a 25 per cent tariff and an additional 25 per cent penalty for importing Russian oil. This is much worse than the 10 per cent tariff imposed on the United Kingdom, the 15 per cent levied on the EU, South Korea, and Japan, and the 15–20 per cent range applied to most of India’s competitors in East and South Asia. Even Pakistan that cleverly nominated President Trump for the Nobel Peace Prize and bought his crypto currency has come out ahead of India. New Delhi seems to have irritated Mr Trump by vehemently denying that he had a role in the recent ceasefire with Pakistan. India is now as badly off as Brazil, Switzerland, and South Africa. 

While Mr Trump has focused on tariffs to beat up on others, it must be pointed out that the US is not as open as he makes it out to be. According to the Tholos Foundation’s Trade Barrier Index 20251, the US has low tariffs, but ranks 61st in the world in overall trade protection when non-tariff barriers (NTBs), services restrictions, and the strength of trade facilitation measures are taken into account. Mr Trump has been targeting countries such as Canada (4th), the UK (9th), Germany(15th), France (36th) and even Mexico (49th) and South Africa (41st), which have lower trade barriers than the US on this more comprehensive trade barrier index. After Mr Trump’s new tariffs take effect, the US is expected to fall from 61st to 113th out of 122 countries on the index, with its tariff levels reaching those last seen in 1930 under the infamous Smoot-Hawley Tariff Act — a measure that triggered retaliatory tariffs and helped plunge the world into the Great Depression. 

Of the East Asian countries, only Taiwan (26th) and Malaysia (36th) are relatively open. Others, such as Korea (85th), China (114th), the Philippines (116th), Vietnam (117th), and Thailand (118th), remain very protected with high NTB’s and services restrictions. The Asean (Association of Southeast Asian Nations) countries, with whom India has a free trade deal, have lower tariffs than India, but other trade restrictions — especially on services — make them highly protected as well. 

Mr Trump’s tariff wars are also flouting World Trade Organization rules, weakening it even further. Even if a full-scale trade war does not materialise — because most countries have caved in to Mr Trump’s demands — the world trading system will no longer be the same, and global economic growth will decline, according to the World Bank and the International Monetary Fund. The World Uncertainty Index, which affects investment decisions, remains extremely high even if it has come down a bit since its peak in April 2025. 

Unless things change in the coming weeks, India’s exporters in gems and jewellery, garments and apparel, pharmaceuticals, organic chemicals will lose heavily if the current tariffs of 50 per cent remain, with job losses in all these areas. The US is India’s largest export market and expanding trade with the US to $500 billion by 2030 — labelled Mission 500 — from around $200 billion today is key to reaching India’s export target of $2 trillion by 2030.   

India is in a quandary. It cannot cave in to US demands because of the heavy share of population still dependent on agriculture where the US wants India to open immediately but also because Mr Trump may demand more concessions on geopolitical issues or interfere in India’s internal matters. He has imposed a 50 per cent tariff on Brazil with whom the US has a trade surplus because Brazil’s judiciary has indicted former President Jair Bolsonaro (a friend of Donald Trump) and threatened secondary tariffs on countries who buy Russian oil.  Mr Trump must realise that his on-off relationship with Vladimir Putin cannot be used to threaten India for buying Russian crude. Russian crude is no longer selling at a large discount and if India were to stop buying, it would disrupt global oil supplies and push oil prices higher. 

On its part, India should use this opportunity to lower its exceedingly high trade barriers in a win-win agreement. India has unnecessarily increased its trade protection since 2018 and now ranks 120th out of 122 countries in the Tholos Trade Barrier Index 2025, just slightly better than Russia and Indonesia, which rank at the very bottom. Outside the sensitive agricultural sector, where the attempt to push down farm laws led to huge agitation, India has ample scope to reduce protection and make a trade deal with the US. 

But Mr Trump must realise that India cannot be bullied. Indira Gandhi as Prime Minister, resisted US President Lyndon Johnson’s food aid bullying and bravely helped liberate Bangladesh despite President Richard Nixon’s threats. Mrs Gandhi went on to help unleash the Green Revolution, ironically with US help, and removed dependence on food aid forever. 

If Prime Minister Modi could now resolve to make India more open and more competitive — perhaps even with US technology and assistance, while keeping its vital interests in view — he would have taken a step forward towards a Viksit Bharat. India must also aggressively pursue a trade deal with the EU following  a successful agreement with the UK, and even consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The scope to renegotiate the Asean free trade deal to extend it to services is also a path India will benefit from. 

If Mr Trump puts penalising tariffs on top of the 25 per cent tariff already announced, India will no doubt lose heavily, and the growing warmth in US-India relations will be set back for a long time despite the QUAD (Quadrilateral Security Dialogue). Whether the rich and influential Indian diaspora in the US can help prevent a break remains to be seen. The stakes for both India and the US are very high indeed.

 

The author is distinguished visiting scholar at the Institute for International Economic Policy, George Washington University, and the author of Unshackling India (HarperCollins India), which was declared the Best New Book in Economics by FT in 2022.