The potential re-election of Donald Trump as President of the United States could significantly reshape trade dynamics, particularly for India, if the country strategically positions itself to leverage emerging opportunities. As Trump campaigns on a platform of raising tariffs, India must navigate these changes to protect and enhance its trade interests.
Trump’s Tariff Proposals and Their Implications
In the lead-up to the elections, Trump has been vocal about his dissatisfaction with the current low import tariffs in the U.S., which he argues have contributed to substantial trade deficits. The U.S. currently maintains a trade-weighted average import tariff rate of just 2%, with approximately 94% of merchandise imports classified as industrial goods. Notably, around half of these imports enter duty-free. Trump’s campaign has included ambitious plans to increase tariffs significantly—proposing a blanket 20% tariff on all imports and a staggering 60% on Chinese goods, with discussions even hinting at 100% tariffs on certain products like electric vehicles13.
The implications of such tariff hikes are profound, especially given that the U.S. is not only the largest importer globally but also has a substantial trade deficit, estimated at $773 billion in goods and services for 2023. This situation presents both challenges and opportunities for Indian exporters, particularly in textiles and other key sectors.
Opportunities for India Amidst Tariff Increases
Experts suggest that India must be proactive in negotiating favourable trade agreements with the U.S. before these proposed tariff increases take effect. Agneaswar Sen from EY India emphasises that India should prepare to make concessions in areas that are important to the U.S., such as agricultural products, which could bolster bilateral trade relations1. The U.S. remains India’s most lucrative market, with total merchandise trade reaching $119 billion in 2023-24, resulting in a trade surplus for India.
However, higher tariffs could adversely affect Indian exports across various sectors, including textiles, automobiles, and pharmaceuticals. Ajay Srivastava from the Global Trade Research Initiative warns that increased tariffs could diminish India’s competitive edge in these markets and negatively impact foreign exchange earnings12.
Navigating Potential Trade Disputes
The prospect of retaliatory tariffs looms large if negotiations do not yield favourable outcomes for both nations. Historical precedents, such as the steel and aluminium tariffs imposed during Trump’s first term, illustrate how quickly trade disputes can escalate. In 2018, retaliatory measures led to significant tensions and disputes at the World Trade Organization (WTO), which were only resolved after extensive negotiations24.
Ajay Sahai from the Federation of Indian Export Organisations cautions that a tariff war could be detrimental for India. He notes that while Trump may focus on China with heightened tariffs, Indian exporters could still face significant challenges if they do not adapt swiftly to the changing landscape15.
Impact on the Services Sector and IT Exports
Beyond goods, Trump’s administration has historically criticised outsourcing practices that benefit India’s IT sector. With over 80% of India’s IT export earnings derived from the U.S., stricter policies regarding H-1B visas could pose additional risks to this vital industry1. However, this environment may also catalyse an increase in global capability centres being established in India as companies seek to diversify their operations away from China.
Geopolitical Considerations and Future Prospects
Trump’s potential return to office may also influence geopolitical tensions globally. If his administration succeeds in resolving conflicts such as those in Ukraine and Gaza, it could foster a more stable environment conducive to international trade15. Additionally, increased cooperation between India and the U.S. in defence, space exploration, and energy sectors could emerge as both nations seek to counterbalance China’s influence.
In conclusion, while Trump’s presidency presents challenges for Indian exporters due to potential tariff increases and trade disputes, it also offers opportunities for strategic negotiation and collaboration. India’s ability to adapt and respond effectively will be crucial in navigating this complex landscape and ensuring sustained growth in its trade relationship with the United States.
