Navigating Trump-Era Tariffs: India’s need for Strategic Trade Policy adjustments

NEW DELHI : India could find itself in the crosshairs if a global trade war breaks out following Donald J. Trump’s inauguration as President of the United States later this month,on 20th . To safeguard its interests, India must reassess its trade relations with the world’s largest economy and prepare for potential challenges.

Delhi-based think tank Research and Information Systems (RIS) has compiled extensive data on bilateral trade flows, commodity-specific trends, and a detailed analysis of India-US trade relations to guide strategic policy shifts.

The study highlights that India is the ninth-largest contributor to the US trade deficit, accounting for 3.8% of the $1.3 trillion deficit. In comparison, China tops the list with a 30.2% share, followed by Mexico, the European Union (EU), and Canada.

Despite India’s relatively modest contribution to the deficit, US trade officials have expressed concerns about limited market access in sectors critical to American interests. Donald Trump, in recent remarks, has also pointed to India’s high tariff barriers, hinting at potential reciprocal measures by the US. While India’s share of the deficit is comparatively small, its vast domestic market remains an attractive prospect for American trade ambitions.

On exports, the study notes the consistent rise that has led to the creation of a trade surplus over the last two decades. Despite some dips along the way, it found that growing exports led to the trade surplus increasing more than five-and-a-half fold between 2003 and 2023. Describing it as an extraordinary rise, the think-tank has also pointed to a decline recorded in the years immediately following the presidency of Trump and Joe Biden. Attributed to fresh policy initiatives at the time, these brief reversals were followed by a resurgent upward trajectory in subsequent years.

The resilience of India’s exports, despite the policy shifts introduced by successive US administrations, lies in its proactive strategies such as unilateral tariff hikes, WTO dispute references, and other calculated interventions. These dynamic measures have effectively cushioned the adverse impact of US trade policies, offering hope that similar responses can address any forthcoming trade challenges through carefully calibrated bilateral trade adjustments.

A key area of concern is India’s significant export surplus in final consumer goods, which could potentially become a target in any trade disputes. In 2023, exports in this category stood at $26.6 billion compared to imports of $2.9 billion. High-value items such as precious metals, shrimp, textiles, pharmaceuticals, and milled rice dominate this segment.

India-US bilateral trade in 2023 was valued at $117.8 billion, with imports at $42 billion and exports at $75.8 billion, resulting in a surplus of $33.8 billion. This surplus has been achieved despite challenges such as tariff hikes on steel and aluminum and the withdrawal of duty concessions under the Generalised System of Preferences during Donald Trump’s presidency. Indian exporters have shown remarkable adaptability, retaining their competitive edge in the face of these obstacles.

The RIS policy brief, ‘Trade, Tariff and Trump’, advises caution in initiating a trade war but suggests strategic responses, including:

• Imposing retaliatory tariffs on select imports like fruits, nuts, mineral fuels, and iron and steel products.
• Diversifying crude oil procurement sources to counter rising costs.
• Leveraging WTO mechanisms for dispute resolution while simultaneously exploring new export markets.

By balancing assertive measures with strategic diplomacy, India can navigate potential trade tensions while safeguarding its economic interests.