As the trade wars launched by US President Donald Trump continue to escalate, all eyes are on Wednesday when his reciprocal tariffs come into effect against “all countries”. Ahead of the reciprocal tariffs’ deadline on April 2, which Trump has called ‘Liberation Day’ for American trade, he said that India will be “dropping its tariffs very substantially”.
“I think a lot of (countries) will drop their tariffs because they’ve been unfairly tariffing the United States for years. If you look at the European Union on cars, the European Union already dropped their tariff to 2.5 per cent. It was announced a couple of days ago. A very small tariff. The United States charged very little," Trump said while responding to questions in the Oval Office.
"I think I heard that India, just a little while ago, is going to be dropping its tariffs very substantially. I said, why didn't somebody do this a long time ago. A lot of countries are going to be dropping their tariffs,” Trump said.
US criticises India’s trade policies
Just a few hours before Trump’s comments, the White House said India imposes a 100 per cent tariff on American agricultural products. It said the high tariffs imposed by other countries made it "virtually impossible” for US products to be imported into those nations.
It also criticized New Delhi's trade policies, such as the "Make in India" initiative, agricultural tariffs, and limitations on dairy imports. Particularly after New Delhi granted licenses for reconditioned American medical equipment in 2024, the US also resisted India's import licensing for remanufactured items and medical devices.
While US is a significant trading partner for India, Trump has time and again termed the latter as “tariff king” and “tariff abuser”, indicating that America’s “friend” New Delhi will be no exception.
Volume of bilateral trade between India and the US
From 2021-22 to 2023-24, the US was the largest trading partner of India. The US accounts for about 18 per cent of India’s total good exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade.
With India, America has a trade surplus (difference between imports and exports), of USD 35.32 billion in goods in 2023-24. It was USD 27.7 billion in 2022-23, USD 32.85 billion in 2021-22, USD 22.73 billion in 2020-21 and USD 17.26 billion in 2019-20.
India-US bilateral trade agreement
The two countries have decided to hold sector-specific talks in the coming weeks to finalise the structure of the proposed bilateral trade agreement. Through the agreement, the two countries are looking to increase market access for their goods, cut tariff and non-tariff barriers and deepen supply chain integration in a mutually beneficial manner.
The meeting follows the visit of Commerce and Industries Minister Piyush Goyal to Washington from March 4-6 during which he met his U.S. Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick and subsequent video conferences between the two sides.
On Friday, U.S. President Donald Trump described Prime Minister Narendra Modi as a "very smart man" while emphasising that tariff talks would "work out very well between India and our country".
The remarks assume significance since Mr. Trump has repeatedly criticised the alleged high tariffs charged by India and other countries on American goods. He has announced plans to impose reciprocal tariffs on its key trading partners, including India, on April 2.
"India is one of the highest tariffing nations in the world. It's brutal, it's brutal. They're very smart. He (Modi) is a very smart man and a great friend of mine. We had very good talks. I think it's going to work out very well between India and our country," Trump said.
In a trade pact, two countries either significantly reduce or eliminate customs duties on the maximum number of goods traded between them. They also ease norms to promote trade in services and boost investments.
While the U.S. has demanded duty concessions in sectors like certain industrial goods, automobiles, wines, petrochemical products, dairy, agriculture items such as apples, tree nuts, and alfalfa hay; India may look at duty cuts for labour-intensive sectors like textiles.
Indian industry and exporters have asked the government to protect them against the USA's reciprocal tariffs. They have sought exemption from those tariffs as it would hurt them severely as the U.S. is India's largest trading partner.
How is India expect to respond?
On Tuesday, Union Minister Jitin Prasada told the Lok Sabha that India’s tariff policy aims to regulate trade, protect local industries, and generate revenue via taxes on imported and exported goods.
Prasada, the minister of state for commerce and industry, informed the House that the government is aware of the recent statements made by NITI Aayog regarding tariffs and their impact on India’s economic growth.
He also noted that India is a member of the World Trade Organisation (WTO) and is bound to its maximum tariffs, which can be applied to any given commodity line.
While it is not clear how the tariffs will be applied - whether at the product level, sector level, or country level, India’s response to the US tariffs will depend on what it stands to gain or lose, and the potential geopolitical and economic implications.
1. India may lobby for trade exemptions and negotiate better terms with the US. It may consider adjusting its own tariffs on US goods as a retaliatory measure.
2. Programs like ‘Make in India’ could be expanded to attract companies looking to exit China.
3. India might deepen ties with the EU, Southeast Asia, and Africa to counterbalance US trade risks.
4. India may accelerate its efforts to diversify its trade relationships, seeking new markets in other regions. This strategy aims to reduce India's dependence on the US market.
Potential Benefits for India
One major outcome of Trump’s tariffs is the push to diversify supply chains away from China. India has long positioned itself as a China+1 alternative for global manufacturers.
1. With the tariffs in play, companies looking to avoid tariffs on Chinese goods may expand operations in India. Sectors like electronics, auto, and pharmaceuticals could see increased production in India.
2. If tariffs make European and Chinese cars expensive in the US, Indian automakers like Tata, Mahindra, and Maruti Suzuki may gain ground.
The extent of India's reaction will depend on the severity of the US tariffs and their impact on the Indian economy. India and the US have a strategic partnership that extends beyond trade. Both countries will seek to balance economic interests with broader geopolitical considerations.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
