Govt should be cautious about tariff cuts amid Trump’s reciprocal plan, says ICC India President Sanghai

He added that New Delhi will need to adopt a balanced approach towards the negotiations for a trade deal given that the US has specifically flagged India’s high tariffs on agricultural products and motorcycles.

“The BTA presents both challenges and opportunities. By focusing on high-value sectors like defence, energy, and services, the target of $500 billion trade can be achieved while navigating the complexities of reciprocal tariffs,” Sanghai, who is also the Founder and CEO of NovaaOne Capital, said.

Edited excerpts of the interview:

The reciprocal plan announced but yet to be elaborated and implemented by the US is aimed at lowering the country’s trade deficit with certain nations. How, according to you, would such steps impact global trade and commerce?

Like you mentioned, the plan is yet to be elaborated and implemented and hence we don’t know the exact impact it would have on global trade.

The uncertainty surrounding these trade measures could delay investment decisions, contributing to global economic instability and disruption in the existing supply chains. Recent data showed that the US trade deficit surged to a record $131.4 billion in January 2025, marking a 34-percent increase from the prior month. The percentage change was the largest since March 2015. This surge came as companies rushed to secure goods before President Trump imposed tariffs on major trading partners. However, this would likely also trigger counterbalancing and these disruptions would be bridged by other countries. Global trade will continue as countries would adapt and find new ways to engage in commerce. This might involve pursuing new trade partners, diversification of exports, or even restructuring the supply chains to mitigate any such disruptions.

India and the US have announced plans to more than double the bilateral trade to $500 billion by 2030 and negotiate the first tranche of a BTA by the fall of 2025. What should be the focus areas of such a deal and do you think this could protect India from the US’s proposed reciprocal tariffs?

The BTA between India and the US, announced after Prime Minister Modi's meeting with President Trump in February, marks a crucial milestone in strengthening trade relations. In fiscal 2024, the total US-India trade was approximately $120 billion. Achieving a target of $500 billion requires a comprehensive roadmap addressing key sectors, including defence, energy, and services, alongside a strategy for attracting US investments despite the protectionist policies of the US.

The BTA presents an opportunity for India to increase its exports in high-value sectors. However, managing the proposed reciprocal tariffs, aimed at reducing trade imbalances, would remain a key challenge. India’s high tariffs on agricultural products and motorcycles have been specifically flagged as inhibitors to the US market access. Given that the US is India’s largest export market and second-largest trade partner, India will need to adopt a balanced approach. It has already reduced tariffs on key US exports like high-end motorcycles and bourbon whiskey.

One of India’s strategic advantages is its robust services sector which has become critical to the US. Encouraging more US investments in India’s technology and innovation sectors could boost long-term economic growth and strengthen the India-US economic partnership.

In conclusion, the BTA presents both challenges and opportunities. By focusing on high-value sectors like defence, energy, and services, the target of $500 billion trade can be achieved while navigating the complexities of reciprocal tariffs. At the same time, India’s growing reputation as a hub for US business investments, particularly in technology and innovation, offers a promising avenue for mutual growth and cooperation.

Do you think India needs to lower tariffs to make its exports more competitive and if, yes, in which sectors?

India’s decision to lower tariffs to enhance export competitiveness must be approached with caution, particularly in light of potential reciprocal tariffs. Reducing tariffs on US goods could make imports more affordable but may also challenge domestic industries, particularly in sectors like consumer electronics, automobiles, and machinery, which could face increased competition from cheaper imports.

To mitigate these effects, India should focus on diversifying export markets, and strengthening ties with the EU, ASEAN, and emerging economies, while simultaneously boosting domestic manufacturing through innovation and advanced technologies. Strategic policy measures, such as stimulating domestic demand and ensuring affordable credit, will further support India’s resilience in the evolving global trade landscape. This balanced approach will help India navigate the challenges posed by protectionist policies while fostering long-term growth and competitiveness.

US President Trump has announced a slew of measures, including higher tariffs on imports from Canada and Mexico, an additional 10 percent on Chinese goods, and a steep 25-percent levy on steel and aluminium. How do you see these steps impacting Indian exports, given that America is the largest export destination for India and which sectors are more vulnerable to these moves?

The US being the largest export destination for Indian goods, India is likely to be impacted by the tariffs that you mentioned. However, President Trump has paused these tariffs to a certain extent, with plans to revisit them on April 2. Hence, the extent of the impact of these tariffs on Indian exports remains uncertain, especially in light of the recent developments regarding the BTA. We would have to look at it from a net impact perspective. India had a trade surplus of $35 billion with the US in fiscal 2024. The net impact of these tariffs may not be very significant or be in double digits. We also export a lot of services critical to the US which may not be impacted.

Commerce Minister Piyush Goyal recently concluded a visit to the US to negotiate the BTA, which could play a significant role in addressing trade concerns and mitigating the impact of these tariffs. The BTA negotiations are still in progress, and its outcomes could influence how Indian exports fare under the current tariff environment.

Given the fluidity of the tariff situation, the exact impact on India’s exports remains uncertain. The evolving nature of the US trade policies and the ongoing BTA discussions will ultimately determine how Indian sectors, such as steel, electronics, and agriculture, are affected in the near term, and what would be the extent of this impact.

Do you see India gaining from relatively steeper US duties on China, especially if more are on the anvil?

India could gain from this as US companies would seek alternatives to Chinese manufacturing due to higher costs. Given India’s relatively lower labour costs and growing industrial capabilities, it would be an attractive alternative for these companies looking to diversify their supply chain, particularly in sectors like textiles, electronics and pharmaceuticals.

However, this potential gain would depend on India’s ability to enhance its infrastructure, ease of doing business and trade policies to accommodate increased foreign investment and scale up production. Additionally, India would need to navigate the geopolitical complexities that could arise from its closer economic ties with the US while balancing its relationship with China.

India is deliberating on a number of FTAs with the likes of the UK, the EU and Oman. Are bilateral trade deals the answer to safeguard exports in an environment that is becoming increasingly protectionist?

BTAs are increasingly becoming a crucial tool for India to safeguard its exports in an increasingly protectionist global environment. With over 20 such agreements already in place, India has strategically positioned itself to enhance trade relationships and mitigate the adverse impacts of rising protectionism. These agreements offer preferential market access, reduce tariff barriers, and foster deeper economic cooperation, providing Indian exports with a more secure and predictable pathway in an uncertain global trade landscape.

For example, the India-ASEAN FTA, implemented in 2010, led to a doubling of bilateral trade by 2020, particularly benefiting sectors such as agriculture, textiles, and pharmaceuticals. Similarly, the India-South Korea CEPA spurred a 50-percent rise in exports, especially in automobiles and engineering goods. Additionally, we would have to look at BTAs from a more holistic perspective as they not only benefit exports but also tourism, student movement, foreign investment and business.

India’s ongoing negotiations with the EU, the UK, and Oman reflect its commitment to further strengthening economic ties and ensuring broader market access. These prospective agreements hold significant promise for sectors like textiles, machinery, and services, thus broadening India’s export horizons.

The World Trade Organization (WTO) estimates global merchandise trade growth for 2025 at 3 percent. Given the tariff announcements by the US is this forecast still relevant?

In October 2024, the WTO downgraded its global merchandise trade growth projection for 2025 to 3 percent, down from an earlier estimate of 3.3 percent, primarily due to ongoing geopolitical risks. While the WTO's forecast does take into account geopolitical tensions, it assumes a degree of stability and cooperation that could be undermined if protectionism continues to escalate, particularly in key markets like the US and China. If we look at the other recent disruptions to world trade, we would see that while there may be short-term disruptions, the world trade eventually bounces back. During the Covid period in 2020, global trade in goods and services dropped by 12 percent, reaching $22 trillion, compared to the previous year. However, by 2022 it rebounded to $31 trillion, marking a 13 percent year-on-year increase. While trade in goods surpassed pre-pandemic levels as early as 2021, trade in services fully recovered in 2022. Hence, even if the global merchandise trade was to be impacted due to the recent announcements in the short term, it would likely bounce back in the long term.

Your views on concerns around WTO’s diminishing role in the future, given the recent occurrences in the world of trade?

Global trade is evolving with the changing geopolitics, given the growing prominence of bilateral and regional trade agreements and the rise of protectionist policies by major economies. However, at the same time, the world is also becoming more multi-polar. Given this change in geopolitics and emerging trade issues like climate change and digital commerce, the role of WTO would be more important than ever.

It is important to recognise WTO's central role in fostering global trade stability and providing a platform for dialogue. WTO replaced GATT in 1995 to cater to the changing world of trade, and it will have to continue to adapt to the changing global dynamics that are currently in play. The organisation faces an opportunity to reform and modernise its mechanisms to better align with contemporary trade dynamics, technology, and evolving policy priorities.