India stands at a crucial juncture as it navigates potential trade challenges posed by the United States under the leadership of Donald Trump. India's diverse export portfolio, which includes textiles, pharmaceuticals, engineering goods, petroleum oils, machinery, and cut diamonds, could be affected as Trump signals a return to protectionist trade measures. This development follows India's complex history with foreign trade policies, once described by American political scientist Joseph Grieco in the 1970s as having "one of the most restrictive, cumbersome… regimes regulating foreign direct investments."
Bilateral trade between India and the US reached new heights in 2023, crossing $190 billion (£150bn). Merchandise exports from India to the US have surged by 40% to $123 billion since 2018, while services trade has grown by 22%, reaching $66 billion. Despite this growth, India's trade surplus with its top trading partner remains a focal point in these discussions.
Recent changes in India's tariff policies reflect a strategic move to enhance trade relations. In 2023, India zeroed out import taxes on satellite ground installations, benefiting US exporters who supplied $92 million worth of goods. Tariffs on synthetic flavouring essences dropped from 100% to 20%, and duties on fish hydrolysate for aquatic feed fell from 15% to 5%. These adjustments have positively impacted US exports worth millions.
India has also lowered tariffs on heavyweight motorcycles with engines over 1,600cc from 50% to 30%, and on smaller bikes from 50% to 40%. US motorcycle exports to India were valued at $3 million last year. Furthermore, India dropped retaliatory tariffs on US-made almonds, apples, chickpeas, lentils, and walnuts in 2023. Top US exports to India include crude oil and petroleum products ($14 billion), LNG, coal, medical devices, scientific instruments, scrap metals, turbojets, computers, and almonds.
Despite these positive steps, uncertainties remain. Ajay Srivastava, founder of the Delhi-based think tank Global Trade Research Institute (GTRI), warns of potential risks.
"Canada and Mexico are literally two arms of the US. If he has acted against them, he could easily act against India too," – Ajay Srivastava.
India's willingness to accept the deportation of undocumented Indian migrants in the US without resistance has sent a positive signal to Washington. However, as Aseema Sinha notes in her book "Globalizing India: How Global Rules and Markets are Shaping India's Rise to Power," historical factors such as "a self-driven industrialisation drive, export pessimism, and suspicion of global alliances" continue to influence India's trade strategies.
The potential re-emergence of protectionist policies under Trump could complicate India's trade landscape. Mr Dhar highlights the delicate balance required in negotiations with the US.
"This is where we will drive a hard bargain, and problems could arise," – Mr Dhar.
For decades, India has worked to reshape its trade policies to foster international partnerships and boost economic growth. The current scenario presents both opportunities and challenges as India seeks to maintain its advantageous position in global markets. While recent tariff reductions demonstrate India's commitment to strengthening ties with the US, the looming threat of new trade tariffs necessitates strategic diplomacy.