Trump’s New Trade Policy and Its Impact on India
With the US to impose reciprocal tariffs from April 2 targeting nations with high levies on American products, India is facing a stiff economic test. With India and the US being considered for a Free Trade Agreement (FTA), which has been viewed as protection for India, the recent moves by the US indicate it might not be effective.
What’s Happening?
President Donald Trump has time and again denounced India’s trade practices as unfair, particularly in industries such as automobiles and agriculture.
The Fair and Reciprocal Tariff Plan is meant to align import tariffs on US products with what other countries charge.
Even nations that have pre-existing US trade agreements, such as Canada and Mexico, have experienced increased tariffs even after the US-Mexico-Canada Agreement (USMCA).
This raises concerns: Will a trade deal truly protect India from Trump’s tariff policies?
Why India is in the Crosshairs
Trump has explicitly called India a “tariff abuser”, highlighting the country’s high import duties on American products:
Agricultural Goods: The US imposes an average 5% tariff, while India charges 39%.
Motorcycles: India’s tariffs stand at 100%, compared to the US rate of just 2.4%.
With India standing at 10th position among US trading partners, its protectionist tariffs make it a soft target for Trump’s America First trade policies.
The Illusion of Protection: Trade Deal vs. Tariffs
During Prime Minister Narendra Modi’s visit to the US in February, the two nations launched Mission 500, aiming to double trade volume to $500 billion by 2030. While negotiations are underway for a multi-sector trade agreement, experts believe it won’t be a silver bullet against reciprocal tariffs.
Ajay Srivastava, Founder of the Global Trade Research Initiative (GTRI), warns:
“Trump’s move to impose tariffs on Canada and Mexico, even after a trade agreement, indicates that he does not have faith in FTAs. India can also be asked to cut farm subsidies, relax data curbs, and open government procurement—all of which are politically contentious.”
Moreover, trade agreements are time-consuming. By the time India gets into an agreement, US reciprocal tariffs will have already kicked in.
Which Indian Sectors Are Most Vulnerable?
Trump’s tariffs will disproportionately affect India because of its higher import taxes on US goods. The hardest hit sectors are:
- Automobiles & Auto Parts
- Chemicals & Pharmaceuticals
- Textiles & Footwear
- Farm Products
As per Emkay Global’s Chief Economist Madhavi Arora:
“India’s imports from America are already being taxed at a lower rate. But because we have one of the highest cumulative tariffs, the effect of tit-for-tat tariffs could be substantial, especially in manufacturing and intermediate goods.”
India’s Counterplay: Minimizing the Damage
In order to minimize the damage, India is doing a number of things strategically:
✅ Tariff Negotiations: Commerce Minister Piyush Goyal’s US trip this week centers around lowering import tariffs on autos and chemicals.
✅ Increasing Exports: India plans to promote textiles and agriculture products to the US to counter trade deficits.
✅ Diversification in Trade: Shoring up relationships with Europe, Southeast Asia, and the Middle East to lessen dependence on the US.
Why Reciprocal Tariffs Might Not Pinch India Hard
Even with Trump’s tough talk, India’s distinctive export basket may mitigate the damage. In contrast to nations such as China, India sends engineering products, pharmaceuticals, and jewelry abroad, while US exports to India consist primarily of crude oil, coal, and diamonds.
A GTRI takeaway of note:
“If the US slaps 50% reciprocal tariffs on Indian pistachios, it won’t make a difference—India doesn’t ship pistachios to the US.”
What’s Next?
With elections around the corner in the US, Trump’s protectionist agenda could continue to change. India needs to remain proactive, emphasizing bilateral trade diversification and achieving long-term economic stability.
