By Prof D Mukherjee
The global trade landscape is on the brink of significant recalibration as Donald Trump prepares to re-assume the presidency of the United States. His well-documented protectionist stance, encapsulated in the “They Tax Us, We Tax Them” policy, heralds a new era of reciprocal tariffs and strategic economic manoeuvres. For India, this development presents a dual-edged opportunity. With a burgeoning economy and strategic geopolitical positioning, India must chart a path that not only safeguards her economic interests but also amplifies her role as a pivotal trade partner for the United States. This write up examines how India’s diplomacy and economic resilience can transform challenges into opportunities during Trump’s second term. Leveraging lessons from Biden’s tenure, which saw bilateral trade exceed $191 billion in 2022, India stands poised to deepen her economic ties through proactive reforms, supply chain realignments, and strengthened alliances. This moment demands reflective action, where India recalibrates her tariff structures, showcases openness, and solidifies her indispensability in U.S. economic and geopolitical strategies. This narrative aims at sketching a blueprint for India to not just survive but thrive, ensuring her economic narrative aligns with global power dynamics in an increasingly protectionist world order. As Donald Trump is historically scheduled to assume the U.S. presidency for a second term on January 20, 2025, India faces a critical juncture in her economic and trade relations with the United States. Trump’s emphasis on “reciprocal tariffs” and his critique of India’s trade practices necessitate a strategic response to safeguard and enhance India’s economic interests.
Trump’s earlier presidency saw the implementation of strong protectionist trade policies, reshaping international trade relationships. India, a key trading partner, was notably affected by these measures. In 2019, heightened tariffs were imposed on Indian exports of steel and aluminium to the U.S., prompting India to retaliate with tariffs on American goods. Further strain came with the U.S. decision to revoke India’s benefits under the Generalized System of Preferences (GSP), impacting approximately $6 billion worth of Indian exports. Recent statements by President-elect Trump indicate a continued focus on reciprocal tariffs, with concerns about India’s high duties on American goods suggesting the possibility of renewed trade frictions.
Amidst these challenges, India retains considerable economic leverage, rooted in its market size, strategic importance, and emerging role in global supply chains. With a population exceeding 1.4 billion and a rapidly growing middle class, India offers an expansive consumer base for American businesses in sectors like technology, pharmaceuticals, and consumer goods. Beyond her eye-catching market potential, India’s strategic alignment with the United States, particularly in countering China’s regional dominance, underscores her importance in the scenario of international trade. Collaboration in areas such as defence, technology, and energy has significantly strengthened bilateral ties. India’s increasing attractiveness as a global manufacturing hub further bolsters her leverage. As companies worldwide seek alternatives to China for supply chain diversification, India’s proactive initiatives, such as the Production Linked Incentive (PLI) schemes, is likely to position her as a competitive and reliable strategic international trade partner for investment and manufacturing as well.
Trump’s historic comeback to the White House brings renewed focus to his “reciprocal tariffs” policy, which targets perceived trade imbalances by imposing equivalent duties on countries with high tariffs on U.S. goods. India, with her significant trade ties to the U.S., faces potential challenges under this policy and must adopt a strategic approach to protect its economic interests.
India’s response should prioritize strengthening bilateral negotiations with the U.S. Proactive discussions with the new administration can address tariff disparities and advocate for more balanced terms, potentially reducing retaliatory measures. Offering selective tariff reductions on specific U.S. goods, such as agricultural products or automobiles, could encourage reciprocity. Additionally, showcasing ongoing economic reforms to improve market accessibility can bolster India’s position as a fair and reliable trading partner. India’s geopolitical significance as a counterbalance to China enhances its value to the U.S., providing leverage in trade negotiations. Engaging in multilateral forums and advocating for fair trade practices can help mitigate risks from unilateral U.S. actions. Diversifying export markets to regions like the European Union (EU), Southeast Asia, and Africa will reduce reliance on the U.S., enhancing India’s trade resilience and global economic standing.
India stands at a pivotal moment as it evaluates her trade dynamics with the U.S. amid Donald J. Trump’s return to the presidency. The trade tensions during Trump’s previous tenure, particularly the tariffs and retaliatory measures between the U.S. and China, disrupted global trade and imposed significant costs on both economies. India can learn from this scenario by avoiding an escalatory approach, focusing on diplomatic solutions, and adopting strategic economic measures to maintain stability and create mutually beneficial outcomes in the face of shifting global trade dynamics. Further, as India is well acknowledged as a peace-loving nation in the planet, she can derive enormous geopolitical pivotal strength to establishing international trade relations and deriving dividends in due course.
In 2022, under President Joe Biden, U.S.-India bilateral trade grew to $191.8 billion, with U.S. exports to India totalling $73 billion and imports from India reaching $118.8 billion, resulting in a trade deficit of $45.7 billion. By 2023, U.S. exports to India had risen to $40.12 billion. Projections from the U.S.-India Strategic Partnership Forum (USISPF) suggest that bilateral trade could rise to $238 billion by 2025, with accelerated growth pushing this figure to $283-$327 billion at a growth rate of 10%-12.5%.
Trump’s renewed focus on “reciprocal tariffs,” designed to address perceived trade imbalances, could place pressure on India to reevaluate its tariff policies. This provides India with an opportunity to engage in proactive negotiations, offering selective tariff reductions to foster goodwill and secure preferential treatment in its trade relations with the U.S. Additionally, global supply chain realignments, particularly due to tensions between the U.S. and China, position India as an attractive alternative for American companies seeking diversification. With her large consumer base, skilled workforce, and ongoing economic reforms, India can attract U.S. investments further by strengthening bilateral trade.
Strategic collaboration in defence, advanced technology, and critical minerals offers another vital avenue for enhancing U.S.-India ties. For example, proposed agreements in critical minerals could facilitate mutual growth and secure both nations’ interests in essential sectors for future industries. To effectively navigate the complexities of U.S. trade policy under Trump’s second term, India must adopt a well-rounded, proactive strategy. Diplomatic engagement with the new administration should focus on resolving trade concerns and showcasing the mutual benefits of a strengthened relationship. India must also reassess its tariff structures, reducing duties on select American goods to demonstrate goodwill and encourage reciprocal actions. This strategy not only reduces the risk of retaliatory tariffs but also fosters a favourable environment for increased trade. Improving India’s domestic investment climate by streamlining business processes, investing in infrastructure, and addressing regulatory bottlenecks will position India as an attractive destination for U.S. investments. These efforts can make India a key player in global supply chains, especially as the U.S. looks to reduce dependence on Chinese manufacturing.
Furthermore, diversifying India’s export markets and expanding its export portfolio will reduce dependency on specific sectors, enhancing resilience against the volatility of protectionist policies. India’s geopolitical significance in counterbalancing China’s influence in the Indo-Pacific region also serves as a strong foundation for deeper collaboration in defence, technology, and critical minerals, offering substantial economic benefits to both nations. India’s trade strategy under Trump’s second term must embrace diplomacy, economic reforms, and strategic partnerships to ensure the growth and resilience of her trade relationship with the U.S. By transforming potential trade tensions into opportunities for collaboration, India can secure its position as an indispensable partner to the United States.
As India looks ahead to the challenges and opportunities in the Trump 2.0 era, she must adopt a strategic, multifaceted approach. First, proactive diplomatic engagement with the new administration is crucial to address trade concerns and build a collaborative relationship. Emphasizing India’s recent economic reforms and openness to foreign investment will foster trust and goodwill. She could also pursue a bilateral trade agreement with the U.S., addressing key issues like tariffs, intellectual property, and market access. A well-negotiated deal could offer structured solutions to trade disputes and pave the way for favourable terms, including selective tariff reductions on U.S. goods like automobiles and agricultural products. In return, India could gain better access for its exports and professionals in the U.S. market.
Domestically, India must focus on enhancing its economic competitiveness by investing in infrastructure, skill development, and business reforms. These measures would help Indian industries adapt to global pressures and capitalize on emerging trade opportunities. Diversifying export markets beyond the U.S. is also critical. Strengthening trade relationships with regions such as the EU, Southeast Asia, and Africa will reduce reliance on any single market and improve resilience. India should also utilize multilateral platforms, like the WTO, to challenge unfair trade practices and advocate for equitable treatment. By leveraging international support, India can buffer against unilateral actions by the U.S. or other countries. By aligning her strategy with global trade norms, leveraging geopolitical significance, and taking proactive steps to enhance trade resilience, India can mitigate risks and seize opportunities, ensuring long-term sustainable growth and a stronger U.S. partnership.
(The Author is an Educationist, a Management Scientist and an Independent Researcher)