US reciprocal tariff an opportunity for India to reset and expand trade

Amidst concerns over disruptions in India-US trade with Washington’s reciprocal tariff plans set to be rolled out in April, a big opportunity beckons. New Delhi can not just hitch on to cutting-edge technologies like AI, semiconductors, and biotechnology, but also fast-emerging quantum computing that promises to be the next big tech leap after AI.

It is in this context that paragraph 15 of the joint statement, issued on February 13, 2025, is significant. It says the US-India TRUST (“Transforming the Relationship Utilizing Strategic Technology”) initiative “will catalyse government-to-government, academia and private sector collaboration to promote application of critical and emerging technologies in areas like defence, artificial intelligence, semiconductors, quantum, biotechnology, energy and space, while encouraging the use of verified technology vendors and ensuring sensitive technologies are protected.”

Not just the scientific community, even tech leaders are eagerly waiting for quantum computing. Google CEO Sundar Pichai recently wrote that quantum computing would “push the limits of what technology can do” helping to solve problems and discover new medicines, design more efficient batteries for electric cars, and accelerate progress in fusion and new energy alternatives.

Making the partnership count

As trade negotiators from India engage with the US to reset the trade engagements, a key focus area in achieving the “Mission 500”—more than doubling total bilateral trade to $500 billion by 2030—could be the collaboration in new technologies for the simple reason that a reciprocal tariff for India would mean immediate loss of trade surplus.

Both the US and China are India’s topmost trading partners—sharing the top position five times each in the 10 fiscals of FY15-FY25 (April-November 2024). Far more importantly, India generates maximum trade surplus with the US—as against China where India is running up huge trade deficits year after year. For instance, commerce ministry data shows that in FY24, India generated maximum surplus with the US, at $35.3 billion, while maximum deficits were generated from the trade with China, at $85 billion. In FY25 up to November 2024, India’s trade surplus with the US was $23.3 billion and deficit with China $65.2 billion. This is a general trend for many fiscals.

If India were to lose the surplus with the US due to reciprocal tariffs, it would mean neutralisation of this gain (trade surplus) and push India’s trade deficits from 21.6% of the total trade in FY24 to 24.8%.

A rising trade deficit would mean further weakening of the exports engine (forex earnings and jobs in the export sector)—pulling down growth prospects. The exports engine has already weakened in recent years—from a peak of 25.2% of the GDP in FY14 to 22.7% in FY24 (P) and 22.6% in FY25 (AE1). Add to this a rapid devaluation of Indian rupee, FPI pullouts and FDI inflows reduced to a trickle and the economic outlook looks precarious. India can hardly afford a further setback.

But a forward movement in science and high-tech areas may help neutralise a temporary loss that India is likely to suffer by the reciprocal tariff or by lowering its tariff in the next couple of months or so. It would also help in growth of domestic manufacturing and services sectors, and their exports.

India is working on the latter option.

Budget 2025 cut duty on technology, automobiles, industrial inputs and waste imports that impact US exports to India—like fish hydrolysate (15-5%), motorcycles (50% to 30-40%), ethernet switches (20-10%), synthetic flavouring (100-20%), ground installation for satellites, including spares and consumables (cut to zero) and specific waste and scrap items (5- 0%). After the Budget, Nomura reported that India was considering reducing tariffs on more than 30 items. Just ahead of the February 13 meeting of Prime Minister Narendra Modi and US President Donald Trump, India announced a cut in import duties on bourbon whisky originating from the US from 150% to 50%.

That is a logical course too as would be clear soon.

However, a few things need to be kept in mind while re-negotiating trade with the US. Two particular elements in the new framework may mean immediate loss or disadvantage. One is Prime Minister Modi’s promise to “strengthen the oil and gas trade” with the US, which would mean importing more oil from the US at a higher cost, against discounted Russian oil. The other is the US President’s intention to sell weapons and equipment, particularly F-35 fighter jets. Besides, the Indian security establishment needs to first establish the need to acquire F-35s, given that India’s existing fighter jets are from France and Russia with supporting infrastructure.

It is also an opportunity for India to reset its trade policies as a whole to rev up the exports engine and contain global concerns about the country’s high tariffs.

The author writes on economics, governance and politics. His books include 'What Derailed the Indian Economy' and 'Attack on the Idea of India'. Views are personal.