India weighs zero-tariff strategy as Trump’s trade war looms, think tank warns of escalation

Even as Commerce Minister Piyush Goyal works on a bilateral trade strategy with the U.S., the New Delhi-based think tank Global Trade Research Initiative (GTRI) has proposed five options for India’s response if U.S. President Donald Trump announces fresh tariffs on Indian exports. These options range from retaliatory tariffs to a zero-tariff strategy.

Ajay Srivastava, founder of GTRI, suggests that India's best option would be to propose eliminating tariffs on most industrial products, provided the US reciprocates. He recommends identifying tariff lines where duty cuts won’t harm domestic industries, referencing India’s past free trade agreement (FTA) offers to Japan, Korea, and ASEAN. Agriculture, he notes, may be excluded from this proposal.

“India should present this proposal before April, ahead of the US tariff decision. If accepted, India could significantly reduce or avoid reciprocal tariffs. Any objections from third countries regarding violations of WTO’s Most Favoured Nation (MFN) principle could be countered by notifying the agreement under GATT Article XXIV. If the US rejects this proposal, it would indicate that the tariff threats are merely a tool to extract broader concessions from India. In that case, India should refuse to engage and pursue other options. The zero-for-zero tariff strategy is India’s best choice and can be implemented quickly,” Srivastava said.

The second-best option for India, according to GTRI, would be to take no retaliatory action against any unilateral US decisions.

GTRI notes that Trump’s trade policies are temporary disruptions but can have a significant impact. “His last trade war, which began in March 2018, led to a $762 billion surge in US goods imports between 2017 and 2023. A new trade war under Trump could be even more damaging. If countries retaliate with counter-tariffs, Trump is likely to escalate further, triggering a downward spiral that could harm partners like India. To avoid this, India may absorb new Trump tariffs without direct retaliation—much like Shiva consuming poison without swallowing it,” Srivastava said. Instead of engaging in a trade conflict, he suggests that India quietly reduce its dependence on the US by avoiding preferential treatment in oil purchases, defence deals, or other areas. “The focus should be on strengthening domestic industries to prepare for the next phase of global trade. This is the next best option after the zero-for-zero strategy,” he added.

A less advisable option, according to GTRI, is to raise tariffs on US goods, tax US digital firms, or issue compulsory licenses for patented drugs in response to US tariffs on India. However, such countermeasures would provoke further US action, escalating into a trade war that could significantly harm India.

Two options GTRI considers unwise are negotiating a hurried FTA with the US and cutting MFN tariff rates. On the FTA, GTRI argues that since negotiations take time, Trump may have already imposed reciprocal tariffs by the time an agreement is reached, making the effort futile. A reduction in MFN tariffs, on the other hand, could harm domestic industries.

The Trump administration is set to impose its first round of reciprocal tariffs on April 2, targeting most of its trading partners, including India.