US president-elect Donald Trump has vowed huge tariffs on goods from Canada, Mexico, and China, his country’s biggest trading partners, when he takes office on January 20, setting the stage for a trade war, which can singe the global economy.
While India doesn’t seem to be Trump's immediate line of fire, experts are closely watching for any change and what it would mean for the country’s economy.
India's trade with the US
India has been spared the opening shots of Trump’s tariff war but his comments in the run-up to the election and earlier offer little comfort.
He has referred to India as "the biggest charger of tariffs", "tariff king” and a “very big trade abuser” for what he sees are high import duties on US goods. He has threatened tit-for-tat action against all countries, including India, imposing high import taxes on American products.
In his first term, Trump raised duties on Indian steel and aluminium. New Delhi retaliated with a higher tax on American produce such as almonds and apples.
According to WTO, India imposes an import tariff of around 9.5 percent on American goods, as of 2022.
Growing economic ties
The US remains India’s most lucrative export market, with total merchandise trade between the two nations reaching $119 billion in 2023-24.
India’s exports to the US amounted to $77.5 billion, while imports stood at $42.1 billion, resulting in a trade surplus of $35 billion, data from the Financial Express shows.
Among its top 10 trading partners, the US is the only country with which India has a trade surplus. In addition to goods trade, services trade is also significant, with India’s services exports to the US totalling $36.3 billion in 2023.
What will ‘Trump tariffs’ do?
If Trump were to make good on this tit-for-tat duties threat, experts say the impact could be significant.
While India is less exposed to the risks of tariffs compared to countries like China, the risk remains.
Analysts at Morgan Stanley say a 10 percent tariff hike could dent India’s economic growth by 30 basis points. However, India's "structural tailwinds", including its growing manufacturing sector, strong service economy and a favourable demographic profile, could cushion the blow.
Sectors at risk: Steel, textiles and electronics
New tariffs would hit India’s key export sectors such as steel, textiles, and electronics hard.
India could see a slowdown in trade, leading to higher consumer costs and disruptions to key supply chains, especially in sectors reliant on US exports, the Morgan Stanley report said.
US Congressman-elect warns against tariffs on India
US Congressman-elect Suhas Subramanyam has strongly opposed higher tariffs on Indian goods, warning that such measures could ignite a trade war between the two countries.
“A trade war would benefit neither country,” Subramanyam said, stressing the need for a dialogue over escalating trade tensions.
Leveraging strategic ties with the US
According to the Centre for Strategic & International Studies (CSIS), despite the looming threat of higher duties, India can leverage its growing relationship with the US, particularly in defence and technology, to ease tensions.
India’s role as a key player in the Indo-Pacific region has cemented its strategic importance for the US, especially in countering China’s influence. Both countries have ramped up cooperation in defence, trade, and technology, it said.
‘Make in India’ worries
CSIS, however, said there are growing concerns that American support for “Make in India,” highlighted by multiple investment pledges during Prime Minister Narendra Modi’s visit to Washington, could be one of the first casualties of the second Trump term. While high-profile initiatives like the Critical and Emerging Technologies may be too important to scrap, India’s hopes of ramping up technology transfers and boosting high-end manufacturing could face significant hurdles under a more protectionist US administration.
Looking ahead
CSIS said Trump’s second term could lead to a shift in how India navigates its economic ties with the US. Strengthening India’s position as an investment hub and adjusting its trade policies would be key to weathering a Trump tariff storm.
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