Trump 2.0: What lies ahead for India-US trade

ON MARCH 2, 2018, Donald J. Trump, the 45th President of the United States of America, posted a message on social networking platform X, then known as Twitter, unsettling governments across the world. “Trade wars are good, and easy to win”, Trump said, revealing his plan to tackle the trade deficit the U.S. had with ‘virtually every country it does business with’. Trump believed that to deal with a country with which the U.S. had huge trade deficit was simple. “…don’t trade anymore-we win big”.

Almost seven years later, Trump will be sworn in as the 47th President of the United States on January 20, 2025. The world’s largest economy is still importing more than what it exports in value terms from its key trade partners, including China and India. Trump’s initial remarks, soon after he won the elections a couple of months ago, suggest that his idea of using ‘trade war’ as a tool to ‘Make America Great Again’, has only gathered strength over the years.

Trump has already threatened, this time through social media platform ‘Truth Social’, to impose higher tariffs on imports from China, Canada and Mexico to not just balance bilateral trade, but also arm-twist countries to do several other things, including curbing illegal immigration and drug smuggling. A few days later he asked the BRICS bloc of developing nations — Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the U.A.E. — to be prepared for 100% import duties if they attempt to replace the U.S. dollar in international trade. Speaking to reporters on December 16, Trump reemphasised his intention of imposing reciprocal tariffs on goods import from India if the latter levies ‘high tariffs’ on American goods. “If India charges 100% tariffs, tax them the same amount,” he said. The possibility of a ‘trade war’ is so real that the latest update of the United Nations Conference on Trade and Development (UNCTAD) on December 5 said expanded trade wars and ongoing geopolitical challenges cast uncertainty over the 2025 outlook for global trade, estimated to reach a record $33 trillion in 2024.

India-U.S. bilateral trade worth over $190 billion is less, compared to countries such as China ($575 billion), Canada ($908 billion) or Mexico ($807 billion). However, it is not a guarantee that India will remain unaffected if the U.S. unleashes a trade war on its partner countries. Some say these are good tidings for India, some want the government to be cautiously optimistic, while others are expecting a challenging time ahead at least for India’s global trade, in both goods and services. What every expert, every stakeholder, agrees is that Trump 2.0 will not be business as usual for India and the world when it comes to foreign trade and bilateral relations.

In a note to investors in November, research firm Nomura said market participants remain in wait-and-watch mode on Trump 2.0, with cautious optimism that India can continue to benefit from supply chain relocation (from China to elsewhere because of the U.S.-China trade war). On the other hand, market intelligence company CRISIL fears that if the U.S. imposes higher tariffs and trade barriers on imports from China, surpluses with the latter could increase the possibility of them being diverted to other countries, including India, which already imports heavily from China. Stock broking firm Motilal Oswal, which looked at the potential impact of the incoming Trump administration on the performance of major Indian IT services companies on three key vectors — immigration policies, corporate tax rates and trade war — suggests that India IT services firms have learned their lessons from the earlier Trump administration (stricter H1B visa rules) and fundamentally altered their strategies and increased localised on-shore hiring, and hence will remain largely immune to stricter immigration rules Trump may impose. Corporate tax cuts in the U.S. will be beneficial, but a more intense trade war could offset some of these benefits, Motilal Oswal notes. Delhi based think-tank Global Trade Research Initiative, on the other hand, foresees the possibility of Trump pressurising India to cut tariffs and also impose higher tariffs on Indian goods, especially in sectors such as automobiles, textiles, pharmaceuticals, and wines, which could make Indian exports less competitive in the U.S. market, impacting revenue. However, “India’s role as a pivotal partner in the U.S. strategy to secure alternative suppliers in critical sectors, including minerals, semiconductors, and electronics could gain greater urgency, positioning India at the heart of a resilient, China-free supply chain,” says Ajay Srivastava, co-founder, GTRI.

While most of the early comments on the possible impact of Trump 2.0 on India are based on the previous Trump administration’s approach towards bilateral relations and Trump’s own comments while on the campaign trail and post election victory, this time there are people who are trying to see how India can make the best of any decision that the U.S may take in the coming months. The Federation of Indian Export Organisations (FIEO), apex export promotion body, has identified a handful of sectors where India is most certain to gain if the U.S. tries to reduce its dependency on Chinese imports. “Once the business moves away from China, we are sure that in a number of sectors where we are much competitive, business will flow to us. These sectors include apparel and textiles, pharmaceuticals, automobiles, electronics, high-end engineering, chemicals etc.,” says Ajay Sahai, director-general and CEO, FIEO.

Sahai, however, cautions that India should be ready to make some adjustments to do business with the forthcoming U.S. administration. “Trump is basically a businessman so he will go for a give-and-take policy. He may look into our principal export to the U.S. and say, I am levying a very high duty, unless you provide me market access. So, let us say he is talking about very high duty in apparel and textiles, on gems and jewellery or other products, we have to be ready to negotiate with them,” he says.

India had reduced the duty on imported Harley Davidson bikes, during Trump’s first term as U.S. President. Medical and diagnostic equipment, including heart stents and others, laptop computers, etc are some of the products where India may have to revisit its import duty structure, notes FIEO.

The fact that Trump could be a tough negotiator is well known. But India has a history of having negotiated with him during his first term. While there were some measures — the U.S. taking away India from the list of countries availing concessions under Generalised System of Preferences (GSP), tariffs on steel and aluminium exported from India, etc., during Trump’s previous regime, India had also reiterated by increasing tariff on some items, including almonds and apples imported from the U.S, only for that to be reversed later.

Statistics also offer comfort at times. According to the commerce ministry, a long-term look at India-U.S. bilateral trade relations shows that barring the 2020-Covid period, exports to the U.S. have been on a steady growth. And in terms of CAGR, exports from India to the U.S. have grown 10.48% during 2001-23, much faster than 4.76% CAGR in exports from the rest of the world, in a likely indication of how India has been able to increase and enhance trade relations with America. The ministry is certain that the growth trend will continue. “The way we are integrating our value chains with the U.S., the way we are integrating the two economies through various agreements, including the Indo-Pacific Economic Framework (IPEF) and others, and bilateral mechanisms, we are able to register sustained growth in terms of our share in U.S. (imports). It shows not only resiliency, but strength,” says commerce secretary Sunil Barthwal.

India is also increasing its imports from the U.S., signalling a more balanced growth in bilateral trade. According to the latest brief of the external affairs ministry on India-U.S. bilateral relations, both countries ‘enjoy a comprehensive global strategic partnership covering almost all areas of human endeavour, driven by shared democratic values, convergence of interests on a range of issues, and vibrant people-to-people contacts’. Considering that about 4.4 million Indian Americans and people of Indian origin reside in the U.S, it’s a sizeable population that both countries cannot ignore. Thus, if over the last two decades the India-U.S. bilateral relationship has been improving, irrespective of the party of the leader in power in the U.S., there isn’t much to worry about just another election result.