US President Donald Trump has referred to India, China and Brazil as “tremendous tariff-makers” and warned of higher tariffs on goods imported from these countries. He said his administration will put America first. Any increase in tariffs will make India’s exports to the US less competitive.
It is apprehended that the US might impose higher tariffs on Indian exports such as textiles and pharmaceuticals. In 2018 during its first term, the Trump administration imposed higher tariffs on aluminium and steel, which led to retaliatory action by the affected nations including India.
The US and China are India’s largest merchandise trading partners. India hopes to work out an amicable solution to the tariff tussle when Prime minister Narendra Modi meets Trump in the White House in February. HT examines the state of trade between the two countries.
How large is India’s trade with the US?
The US is India’s largest destination for merchandise exports, accounting for more than 18% in value. India exported goods worth $77.5 billion to the US in 2023-24, which was more than the cumulative value of goods exported to the next three largest destinations. That trend continues in 2024-25.
In comparison, imports to the world’s largest economy are much smaller, accounting for a little more than 6%. Significantly, India’s imports from the US fell 17% to $42.2 billion last year. This imbalance between imports and exports has led to a rising trade deficit for the US in its bilateral trade with India, triggering Trump’s tariff threats.
What constitutes the trade basket?
Petroleum crude and products constitute about a third of India’s imports from the US. Pearls, precious/semi-precious stones and imitation jewellery together are the second largest items of import. Other significant purchases include equipment for power plants such as nuclear reactors and boilers, electrical machinery and equipment, aircraft and parts and medical equipment. India has also been importing military equipment from the US as it diversifies away from Russia.
India’s exports to the US include petroleum products, drug formulations, pearls, precious/semi-precious stones, telecom instruments, electrical machinery, apparel and cotton fabrics and electronic components. India’s exports to the US rose rapidly after the Covid disruptions of 2020.
What does Trump want from India?
Trump wants India to lower tariffs on American goods and also buy more from it. A White House readout after the recent telephone call between Trump and Modi stated: “The President emphasized the importance of India increasing its procurement of American-made security equipment and moving toward a fair bilateral trading relationship.”
In his first term, Trump repeatedly cited the high tariffs that India had imposed on Harley-Davidson motorcycles to demand lower tariffs. India cut duties by half in 2019 and the iconic bike is also manufactured in the country.
Global Trade Research Initiative co-founder Ajay Srivastava pointed out that Trump tends to refer to the highest rates when he demands others lower tariffs. While the average import tariff in the US is 3.3%, in India it is 18%, with some items such as whiskeys and wine attracting 150% duty and cars, 125%. Even with these levels of tariffs, India complies with its commitments to the World Trade Organization (WTO).
He added that Trump’s tariff reduction demands will fall foul of the commitments made by nations to the WTO.
Is India willing to reduce tariffs?
Goods imported from the US are subject to the same duties as goods from any country with which India does not have a free trade agreement (FTA). India could have agreed to lower tariffs on American goods if the two countries had entered into a FTA. The Indo-Pacific Economic Framework for Prosperity (IPEF) could also have been a platform for negotiating preferential treatment for goods of signatory countries. However, tariff cuts are not included in IPEF.
The budget cannot be used to announce any concessions for any specific country. Any general reduction of tariffs through the budget or otherwise is likely to benefit China and Vietnam instead of the US. Srivastava felt that India should wait for a list of demands from the US before making any move.
Can India buy more from the US to balance trade?
Trade takes place mostly between private parties and those decisions are determined by commercial terms. The US wants India to buy more weapons from it, and there is a possibility that might fructify as India wants to diversify away from Russia. Currently, petroleum crude and products are top purchases of India from the US. India can increase its purchase of petroleum crude only if the American oil companies offer better deals than countries such as the UAE and Russia.
Srivastava felt that the US should look beyond the trade deficit and consider the overall economic relations between the two countries. India is an important market for not just the old economy American companies, banks and financial services but also tech companies such as Microsoft, Meta and Alphabet and e-commerce players such as Amazon and Walmart. Social networking companies have their largest user base in India.