India braces for tariff wars as Donald Trump looks on track to script a famous comeback

India's Prime Minister Narendra Modi and former US President Donald Trump

Republican challenger and former US president Donald Trump is marching ahead in the race to the White House, triggering worries for India’s trade prospects following his recent comments. Trump’s potential return ups the likelihood of higher tariffs on Indian exports.

Experts though have been saying that India is set for tougher trade ties with the US, regardless of who enters the White House in January as heightened protectionism and a greater emphasis on "America First" is on the cards.

But unlike Trump, who has taken a stringent note on India’s "high tariffs" and limited market access, his Democrat rival Kamala Harris has not spelt out her trade strategy.

“Trump has said that more tariffs may be imposed on India, not only on China if he is elected to power. While Biden and Harris have not commented on trade policy regarding India, Trump has negatively commented on this. Though both parties in the US have taken a route towards protectionist trade policy giving precedence to local manufacturing, if Trump comes, the effects will be multiplied against India,” said Ajay Srivastava, founder, Global Trade Research Initiative (GTRI).

Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO), points out that “Trump’s push for market access for US products into India such as dairy and medical equipment may be more compared to if Vice President Kamala Harris gets elected to the highest office.”

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Srivastava summarises that while a Trump presidency could bring direct challenges for India in tariffs, a Harris administration would have likely maintained a more balanced relationship.

This is at a time when bilateral trade has grown in India’s favour under President Joe Biden.

The US is India's largest trading partner, with annual trade exceeding $190 billion. Between FY20 and FY24, India's merchandise exports to the US rose by 46 percent, from $53.1 billion to $77.5 billion. Imports from the US also grew, from $35.8 billion to $42.2 billion, a rise of 17.9 percent.

Trade in services between the two nations expanded 30.3 percent from $54.1 billion in 2018 to an estimated $70.5 billion in 2024.

The US is a significant market for Indian goods, particularly in sectors like technology, pharmaceuticals, textiles, and engineering products.

In fact, North America and the European Union remained India's topmost destinations for engineering exports with a share of around 21 percent and 17 percent, respectively, in India's total outbound shipment of the product during September 2024.

Therefore, any higher tariffs by America could significantly impact many of India’s export-oriented sectors that rely on demand from the US market.

As Sanjay Budhia, Co-Chairman, CII National Committee on EXIM, pointed out, a potential tariff hike on Indian exports, particularly in sectors like engineering goods and steel, could have a significant financial impact, as these sectors are among India’s highest-earning exports.

"The Trump administration imposed a 25 percent tariff on imported steel and 10 percent on aluminum in 2018. Due to this Indian steel and aluminum exports faced substantial losses, with the steel sector alone seeing a reduction of approximately $240 million," Budhia said, In 2024, sectors most vulnerable to a potential tariff hike could now also include pharmaceuticals, textiles and information technology.

The Trump trouble

The former president has repeatedly called India a tariff abuser in the run-up to the election and vowed to introduce a reciprocal tax against New Delhi if elected to office.

“Trump’s 'America First' agenda would likely push for protective measures, such as reciprocal tariffs on Indian goods, potentially adding barriers for key Indian exports like automobiles, wines, textiles, and pharmaceuticals. These increases could make Indian products less competitive in the U.S., impacting revenue in these sectors,” Srivastava said.

Trump, last year, also raised the issue of high taxes levied by India on select American products including Harley-Davidson motorcycles.

He has also been pointing out the widening trade deficit between the two nations in favour of India.

Data from commerce ministry shows that the trade deficit in India’s favour jumped from $13.3 billion during April-March 2021 to $25.9 billion in the same period in 2024. A period that marks the Biden presidency years.

To be sure, given that Trump’s leadership covered the pandemic years that virtually stopped trade and services across the world, it is difficult to compare trade between his presidency and his successor’s. However, in 2018, Trump imposed additional duties under a national security law on certain steel and aluminium exports from India and other countries. impacting crucial sectors.

America imposed additional tariffs of 25 percent and 10 percent on steel and aluminium, respectively, under section 232 of the Trade Expansion Act, 1962 in March 2018 on a global basis. While this led to a drop in steel exports during 2018-19, outbound shipments of aluminium in the affected lines increased by 14 percent during the same period.

In response, India imposed retaliatory tariffs on 28 products originating or exported from the US with effect from June 16, 2019, with an additional impact in terms of duty incidence of about $217 million.

This dispute, along with some others, was settled in 2023 under Biden’s presidency with the US agreeing to exempt a substantial part of steel and aluminium exports from India from penal tariffs imposed by the Trump regime, while India removed retaliatory tariffs on certain imports from the US including apples, almonds, chickpeas, lentils and walnuts.

GTRI’s Srivastava said that in the event that Trump returns to power and imposes similar tariffs on Indian exports, the country should calculate the quantum of such an action and “just take retaliatory measures”.

FIEO’s Sahai agrees that India always has the option to retaliate if tariff wars intensify under a potential Trump presidency.

The China caveat

While a Trump comeback is widely expected to lead to higher tariffs for Indian exports like steel, experts see a silver lining – the US's hyper-focus on the China plus one strategy could end up benefiting the South Asian nation in the long run.

Sahai said that a continuation of the US’s China plus one strategy could be in India’s favour as US firms further step up efforts to seek alternatives to Beijing even under a potential Trump presidency.

“Trump is expected to be harsher on China and we may see therefore more H1B visas flowing to India. And that, in turn, will facilitate more global companies to set up shops in India. China plus one strategy is also expected to further gain momentum which will also benefit India. While his tariffs may be steeper for China, for other partner countries, including India, the extent of the hike could be relatively lower,” Sahai added.

According to Sriparna Pathak, an Associate Professor at the Jindal School of International Affairs of O.P. Jindal Global University, Trump is expected to be harsher on China versus India when it comes to trade.

“If Trump comes back, he would be less kind to China versus India. He seems to have done a de-hyphenation between India and China when it comes to tariffs. For India, trade would take a bit of a tumble as he may demand to reduce the trade deficit. But given that he also mentions India as a friend, it may be more manageable for us versus China,” according to Pathak.

Sahai believes that Trump may go for a much higher tariff for China and a relatively lower one for other partner countries, including India.

“One thing is clear from his (Trump’s) statements in the past, he is not looking at a uniform tariff for all countries. He is looking for a steep one on China and a comparatively lesser one on other partner countries, including India and for say certain products. This duty differential with China may therefore help India,” Sahai said.

President Joe Biden has already slapped new tariffs on Chinese electric vehicles, advanced batteries, solar cells, steel, aluminium and medical equipment earlier this year, heating up the ongoing trade war between the two giant economies.

Most experts see this stance against China continuing, if not intensifying, irrespective of the election outcome in the US presidential polls.

Even if Trump wins, "a tougher US stance on China could create new opportunities for Indian exporters,” Srivastava said.

Whatever the expert view, the Indian stock market seem to like the prospect of a Trump presidency with benchmark indices trading almost a percent higher as the Republican candidate strengthened his lead over his Democrat rival.