Tariffs as a Weapon
Will Trump’s trade challenges become opportunities for India to emerge a leading trading nation ?
Terming April 2 as America’s “Liberation Day”, U.S. President Donald Trump has announced a 10% baseline tariff across the board and retaliatory reciprocal tariffs on some of the country’s closest allies and partners.
Approximately 60 countries with significant trade surpluses against the US will be subject to these tariffs, and the list includes India whose prime Minister Narendra Modi, according to Trump, is his “very good friend”.
Reportedly, Indian officials have described Trump’s announcement as a “mixed bag”, something that is both a challenge and an opportunity.
And more importantly, there is a school of thought in India that says India could manage its losses in Trump’s America by finding alternate markets in North America, particularly in Mexico and Canada.
How exactly is Trump’s announcement going to hurt Indian exports to America?
As it is, Trump’s universal tariff of 10% on all countries is due to take effect on April 5th, while the reciprocal tariffs targeting countries with large surpluses in their bilateral trade with America will start on April 9th.
In calculating the reciprocal rates, Trump has suggested that he had weighed each country’s tariffs against America, along with other measurements, including currency manipulation and trade barriers, before dividing the figure roughly in half. As a result, China will see tariffs of at least 54%, since its reciprocal rate will stack on top of its existing levies.
It is calculated that the European Union will face tariffs of 20%, Japan 24%, India 26% and Vietnam 46%.
Experts point out that Trump’s actions are in direct conflict with many of the rules and regulations of the World Trade Organization (WTO). These are against the WTO’s Most-Favored Nation (MFN) Principle that mandates that tariffs must be applied equally to all trading partners. WTO rules prohibit countries from imposing unilateral tariff hikes such as that by Trump.
It may be noted that developing countries like India are permitted higher tariff protections under WTO rules. The rationale here is that these tariffs help shield their emerging industries from foreign competition, promote self-sufficiency, and regulate trade imbalances.
But the Trump Administration seems to have overridden these provisions. Its dubious argument is that while the U.S. maintains relatively low tariffs, other countries impose higher duties and trade barriers on American goods, resulting in a disparity of more than US$ 1 trillion trade deficit, harming American industries and workers.
As far as India is concerned, following its liberalisation of the economy in the early 1990s, the United States has emerged as its most significant single-country trade partner. For instance, in the year 1992, the US accounted for 16.4% of India’s total exports. But by 2000, this share peaked at 22.8%. Covid brought the figure down, but it has registered steady progress in the last three years, growing to US$ 77.5 billion in FY (financial year) 2024.
Against this background, the Trade Council of India has brought out a significant study (Tariffs & beyond – Future of India-US trade relations.pdf – Google Drive) by its Joint Director Virat Bahri, Research Associate Nehchal Singh and Research Assistant Dilshad Khan. It has summarised the Indian export-items to the U.S. that will be now under High Risk category, Moderate Risk category and Low risk category based on the tariff differential (calculated as the ad valorem tariff imposed by India on US imports minus the ad valorem tariff imposed by the US on Indian imports) and the US share in India’s global exports of commodities concerned.
High Risk category ((Tariff Differential ≥ 30% & US Share > 10%)) items include vehicles (other than Railway) & parts [that fetched 2,647.57 million dollars but the tariff differential ((India > U.S.)of 73, with U.S. share being 2.67 percent]; Preparations of Meat, Fish, Crustaceans, Molluscs [fetched 585.34 million dollars, with the tariff differential of 47, with U.S. share being 80.64 percent]; Fish & Crustaceans, Molluscs (fetched 1,903.86 million dollars, with the tariff differential of 30 and the U.S. share being 31.09 percent].
Moderate-Risk Products (Tariff Differential ≥ 7% & US Share > 25%) happen to be carpets & other Textile Floor Coverings [fetched 1,088.01 million dollars, with tariff differential of 8 and U.S. share being 58.01]; Furniture, Bedding, Mattresses, Lamps [1,100.85 of million dollars, tariff differential of 10 and U.S. share of 45.55 percent]; Articles of Stone, Plaster, Cement, Asbestos, Mica [ of 864.19 million dollars, with tariff differential of 10 and U.S. share of 41.69 percent]; Pharmaceutical Products [8,079.95 million dollars, U.S.tariff differential of 10 and U.S. share of 36.55 percent]; Natural or coloured pearls [9,948.50 million dollars, U.S. tariff differential of 11 and U.S. share of 30.28 percent]; Articles of Iron & Steel [2,793.57 million dollars, with U.S. tariff differential of 10 and U.S. share of 28.11 percent]; and Leather, Saddlery, Handbags [682.23 million dollars, with tariff differential of 7 and U.S. share of 27.88 percent].
Of course, it needs to be noted here that India’s pharmaceutical sector, which exported more than $8 billion of products to the United States in the 2024 fiscal year, has been spared by the White House . It is exempt from its reciprocal tariff move, as of now.
Then, there are the Low-Risk products for US$ 37 billion (Tariff Differential < 7% OR US Share < 25%) that include 12 broad categories of items, most important being Electrical Machinery & Equipment [11,081.13 million dollars, with tariff differential of 5 and U.S. share of 32.2 percent].
But it is to be noted that while the U.S. may become the most important destination for Indian exports, India figures insignificantly in U.S. exports compared to its share in India’s exports. While the US accounts for nearly 18% of India’s total exports, India’s share in US exports is considerably lower, less than 2%, as estimated in 2024.
Obviously, India has reasons to worry. However, Indian industry leaders have noted that all told, many countries which they compete with globally, including China, Indonesia, and Vietnam etc have been hit harder than them. So Trump still considers India to be a friendly country and will reconsider its policy, it is said.
After all, so runs the argument, reciprocal tariff issues would be mutually resolved once the trade agreement between India and the United States is concluded in a few months time, which have been promised by both President Trump and Prime Minister Modi. It will deal with the critical questions about the impact on India’s exports and market access to the U.S. and could offer a pathway to tariff reductions, improved market entry, and strategic sectoral gains for India.
Secondly, it is argued that since Canada and Mexico will be hit very hard by Trump’s policies, these two countries could find Indian exports to be good replacements of the American items that they are importing at the moment.
The Trade Council of India study says how among others India’s growing automotive and engineering sectors position it well to capitalize on the sharp decline in US vehicle and machinery exports to Mexico and Canada. Same could be the case with India’s expanding refining capacity; India’s electronics and precision instrument industries; India’s globally competitive pharmaceutical industry; increased shipments of plastic products and steel components; and growing agribusiness exports (given Mexico’s high dependency on US cereals and meat).
While India may not fully replace U.S. exports in these categories, it can strategically increase its market share in these nations by leveraging competitive pricing, existing trade agreements, and supply chain efficiencies, the study says, adding “the trade diversion effect suggests that Indian exporters should focus on scaling up production and meeting quality standards to capitalize on the shift in trade dynamics resulting from the US tariff hikes”.
In sum, the question is whether the Indian industry will be able to convert the tariff challenges from the U.S. to opportunities for strengthening India’s position in global trade and manufacturing. Only time will tell.
(This piece first appeared in the Eurasian Times)
