India and the US: Navigating the complex battle for tariff dominance

DONALD TRUMP, the 47th U.S. President, has in the past described India as a “tariff king”. And in the first few weeks of his second stint, the U.S. has unilaterally initiated action against India, and other trade-surplus nations, by imposing tariffs on products like steel, aluminium, and pharma. What many aren’t aware is that India was one of the 23 founding members of GATT, the predecessor of the WTO. The country’s commitment to the market economy and strong democracy makes it a natural ally of the U.S. But the perception, especially in the U.S., is that India imposes high tariffs and isn’t market-friendly.

The U.S. believes trade surplus countries like India, Canada and Mexico use unfair trade practices. High trade deficits with India and the world are a cause of concern among U.S. officials who believe unbalanced free trade is hurting millions of Americans who are losing jobs.

From a starting trade deficit of less than $80 billion in 1991, U.S. trade deficit reached $918.4 billion in 2024. The largest trade gaps were recorded with China ($295.4 billion), the EU ($235.6 billion), Mexico ($171.8 billion) and Vietnam ($123.5 billion). In FY24, merchandise trade deficit between India and the U.S. stood at $35.3 billion. The largest drivers of this deficit were pharma products, jewellery and silverware, auto parts, travel goods and steel pipes.

India has been reducing tariffs on products that are mainly imported from the U.S. In Union Budget 2025, India reduced tariffs on motorcycles (from 50% to 30%), special waste and scrap items (5% to 0%), fish hydrolysate (15% to 5%), and synthetic flavourings essences (100% to 20%). But according to the U.S., the average Most Favoured Nation (MFN) tariff rate of India at 17.6%, is the highest among any major world economy.

During Trump’s first stint in the White House, the U.S. removed India from a duty-free programme called the Generalized System of Preferences, in 2019. Under it, developing countries sell their products in the U.S. without paying the normal tariff. “While India uses GSP and runs large trade surpluses with us, it denies us equal access to its market and charges our producers high tariffs,” writes Robert Lighthizer, U.S. Trade Representative (2017-21) in his 2023 book No Trade is Free. Coming from a former Trump administration official, this hints at how deep-rooted the perception of India as a tariff king is, and that more action could follow.