The clock is ticking as India nears the April 2 deadline when reciprocal tariffs, announced by US President Donald Trump, are expected to kick in. President Trump had also called out India as a ‘tariff abuser.’ After the Indian Commerce Minister’s visit to the US, Trump said that India had agreed to cut tariffs although the Indian side is yet to come out with an official statement.
Commerce Minister Piyush Goyal was in the United States in the first week of March meeting officials and setting the ground for what will be intense negotiations ahead of the bilateral trade agreement. The two countries have agreed to negotiate a bilateral trade agreement by September-October 2025.
With about three weeks to go for April 2, there is evidently not enough time for both sides to agree upon the broad contours of the trade agreement – with over 13,000 line items, 400 of which concern the IT sector alone – policymakers and industries are grappling with the uncertainty that reciprocal tariffs could bring.
“India could most likely lower tariffs for the automobile sector – the impact would be on automobiles priced over Rs 50 lakh, which is the premium luxury segment, and it would give a win to Trump,” said a source who was in regular touch with the negotiators last week.
As both sides go line-by-line on what could be an intense tariff war, stakeholders are of the view that India will have to ride the storm rather deftly, giving enough wins to the US and keeping the conversation going ‘until Trump moves on from India’. India’s exports to the US include engineering goods, pharmaceuticals, textiles and agricultural products.
Lowering tariffs on auto imports could be the pacifier that Trump needs. The auto industry has said that reducing tariffs would have a minimal impact on the sector as India’s exports to and imports from the US are limited. Tesla too is expected to import to India from their German facility. Of exports worth $21 bn of auto components, only about $7.6 bn worth of are exported to the US.
However, reducing tariffs just for the United States could emerge as a violation of the World Trade Organization rules. The choice for India could be to either extend the lower tariffs to Europe or to go ahead with tariff reductions just for the US regardless of what the WTO rules say.
In the past, India has had run-ins with the WTO – A WTO panel had ruled against India in a dispute with the EU, Japan and Taiwan over import duties on IT products. The finding was that India’s tariffs on products like mobile phones were not in line with WTO commitments. India has also faced allegations of exceeding market support for wheat and rice – ``potentially distorting” global trade. At the time, India invoked the WTO’s ‘peace clause’ to justify exceeding subsidy limits.
Trump has called India a ‘Tariff Abuser’, a nomer that India is trying to shrug off. PM Modi’s meeting with the US President in mid- February showcased the Modi-Trump bonhomie. Prof Robert Lawrence, Professor of International Trade at the Harvard Kennedy School observed that the meeting between the two leaders displayed that India could indeed be an exception to the Trump rule of reciprocal tariffs.
“It seems to me that there are important exceptions to that rule, and I see the relationship with India as one of them. There are huge strategic advantages to the United States in having India as an ally. India is a key player from a geopolitical standpoint, and so there seems to be on the part of the Trump administration a willingness to treat India differently,” said Lawrence in an interview to Moneycontrol. Read the full interview here
US total goods trade with India was an estimated $129 bn in 2024 - US exports to India were $41.8 bn and imports from India totalled $87.4 bn. The US trade deficit with India was $45.7 bn in 2024.
India’s tech and IT sector is a major exporter to the US. India’s total exports of software services increased to $205.2 bn during 2023-24, higher than the $200 billion in 2022-23.
The US is a major software export destination for India with a 54 per cent share. However, India’s import tariffs in the electronics sector are higher than China, Vietnam and other economies.
According to a report by the India Cellular and Electronics Association (ICEA), high tariffs are negating the impact of the production linked incentive scheme. An ICEA study looked at 120 tariff lines of electronic priority products in India, China, Vietnam, Thailand and Mexico. India brought in the PLI scheme to give manufacturing a push – and electronics exports have been one of PLI’s biggest success stories with export of mobile phones hitting Rs 1.5 lakh crore in January, 2025.
Industry had demanded that tariffs on electronic imports be reduced for greater competitiveness. Even as the tariffs threatens to upend the trade dynamics of several countries, the story for India could play out differently.
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