Trunk Economics | MARCH 6, 2025
The Tariff Trap: India's Delicate Dance with Trump's Trade Policy
The tariffs may be intended to protect American interests, but they could have far-reaching and unintended consequences for the global economy. It is time for a more nuanced and cooperative approach to trade policy, one that prioritizes the interests of all nations, not just one.
IN THE FINAL YEAR of this millennium’s first quarter, the month of March isn’t looking any merrier. US President Donald Trump has upended the rules of the game. Tariffs, territory and transactions have emerged as the signature characteristic of his MAGA (Make America Great Again) playbook.
The ripples, understandably, have reached India too. As Donald Trump's latest tariff moves threaten to topple the delicate balance of global trade, the Indian economy finds itself squarely in the crosshairs. Multiple industries are bracing for impact as the US President's plans to impose tariffs on auto, semiconductors, and pharmaceutical imports, with rates expected to be around 25%, set to kick in on April 2. India's relatively high tariff rates and a $41 billion trade surplus with the US make it particularly vulnerable to such measures.
India's Response: Tariff Rationalization and Economic Reforms
The US has long been critical of India's trade practices, with Trump himself describing India as a "tariff king" and "tariff abuser" on multiple occasions, and while India has made some concessions, including lowering tariffs on certain products, such as Bourbon whiskey, wines, and electronic vehicles, in its Union budget for 2025-26, it remains to be seen whether these measures will be enough to appease the Trump administration.
One area of particular concern is the auto sector, with India charging the US auto tariffs higher than 100%, which Trump has deemed "very unfair", and while India has argued that its tariffs are in line with World Trade Organization (WTO) rules, the US has threatened to impose retaliatory tariffs, which could have far-reaching consequences for India's auto industry.
In response to the US tariffs, India is considering additional tariff adjustments to counter potential US tariffs, with Finance Minister Nirmala Sitharaman emphasizing that duty cuts and rationalization are part of a continuous process aimed at strengthening India's position in global trade, and while the government is conducting a sector-wise analysis to identify areas where tariffs can be reduced or eliminated, the outcome remains uncertain.
The government is conducting a sector-wise analysis to identify areas where tariffs can be reduced or eliminated. Commerce Minister Piyush Goyal is currently in Washington to hold talks with his American counterpart on a proposed trade deal.
The tariffs can strain trade relations between the US and India, potentially affecting other areas of trade cooperation. This underscores the need for a nuanced and multifaceted approach to trade policy, one that balances competing interests and prioritizes cooperation over confrontation. Lest we risk unleashing a global trade war, with devastating consequences for economies around the world.
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