India - US: Probable Impact on India of Trump Tariff Plans
STORIES, ANALYSES, EXPERT VIEWS
US President-elect Donald Trump, set to take charge of the White House on January 20, has announced plans to impose 25% tariffs on China, Mexico, and Canada, indicating that his administration will continue to use tariffs in an effort to bring manufacturing jobs back to the country and as a leverage for trade negotiations. India does not feature in Trump’s initial tariff plans.
Trump on India: During his campaign, however, Trump labelled India a “very big [trade] abuser,” suggesting he might renew trade tensions from his first term by imposing higher tariffs on over $75 billion worth of Indian exports to the US.
In 2019, India lost duty-free access under the Generalised System of Preferences (GSP) programme, of which it was the largest beneficiary. The programme had allowed tariff-free exports worth approximately $5.7 billion to the US.
Benefits for India could be ‘limited’: According to Bernstein Research, a Trump presidency would adversely impact China, but the benefits for India could be “limited,” as it may face renewed tariff pressures. The “China-plus-one” strategy could gain momentum, but the inflation caused by trade barriers might disrupt the anticipated interest rate cuts, affecting middle-class consumption in India, the research note highlighted.
India will need to navigate carefully
India nevertheless, needs to be careful. According to The Indian Express, “the imposition of steep tariffs, which are essentially a tax on imported goods, could possibly disrupt supply chains, become inflationary, raising costs for consumers and business, and have implications for interest rates…..”
India thus, “will need to navigate the changing global political and economic environment deftly. The government could leverage bipartisan support in the US for strong ties between the two countries to negotiate with the Trump administration. Alongside, it must move towards making the economy less protectionist, and draw on its political capital post assembly election wins, to push through contentious but necessary reforms. It needs to make the country an attractive investment destination, and take advantage of the opportunity that Trump’s trade moves may open up.”
India in a relatively better position
Overall, according to Ravi Dutta Mishra (Principal Correspondent · The Indian Express) “India is relatively insulated from Trump’s tariff war, primarily because India is less export-oriented than many other Asian economies, as per Fitch Ratings. However, if the global growth shrinks, it would also impact India’s goods and services exports, especially to the US, its largest trade partner.”
A report by S&P Global, released Tuesday, indicated that China’s growth could slow to 4 per cent by 2025 due to US tariffs weakening exports and investment. Conversely, India is expected to maintain a robust expansion rate of nearly 7 per cent, taking the “global growth baton.”
Despite this optimism, S&P cautioned that the US’s economic performance, which has supported global stability, might shift under the new administration. The policies aimed at further stimulating an already robust economy could result in higher inflation, elevated interest rates, and a stronger dollar. These, writes Mishra “effects may tighten financial conditions in the US and impact emerging markets, including India.”
US remains India’s largest trade partner: Notably, the US remains India’s largest trade partner, with bilateral trade surpassing $120 billion in FY24, slightly outpacing India’s trade with China. Unlike China, India’s trade balance with the US is favourable, making the relationship a vital source of foreign exchange. Over the past decade, India’s reliance on the US market has grown, with the US now accounting for 18 per cent of India’s exports, up from 10 per cent in 2010-11. India’s export portfolio to the US is diverse, spanning textiles, electronics, and engineering goods.
The Adani affair threatens to roil US-India diplomatic ties
Perhaps less offensive, than the tariff war, though serious for India, is the Adani affair. US President designate Donald Trump faces a dilemma after US prosecutors charged Gautam Adani — India’s most powerful businessman and a close ally of Prime Minister Narendra Modi — in a $250 million bribery scheme. While Modi’s party called it a private matter, and Adani’s company denied the allegations, Sudhi Ranjan Sen, Bloomberg writes “the case threatens to roil US-India diplomatic ties."
However, things are not all that gloomy for India. Beyond Trump’s personal connection with Modi, the incoming US president has packed his team with China hawks who want to see stronger ties with India to counterbalance Beijing’s power in the region.
Yet, writes Sen “even if Trump does a favor for Adani, who praised the president-elect’s ‘unbreakable tenacity’ after his election win, the case is yet another reminder of the long reach of US law — one that can affect both friends and foes around the world. A proliferation of American sanctions targeting Russia, China and even India, although it’s mostly gotten waivers, has accelerated the expansion of the BRICS grouping as nations seek an alternative to the US dominance of the financial system.”
For India in particular, “the charges against Adani only reinforces its strategy to keep a foot in both major camps, staying friendly with the US while also keeping up good ties with Russia, China and other major economies in what’s known as the Global South. India remains reliant on Russian weapons and energy, and soon plans to host Vladimir Putin for the first time since the war began.”
Adani indictment seen in New Delhi as politically driven
According to Brahma Chellaney, (professor of strategic studies at the Center for Policy Research in New Delhi) “the indictment of Adani is seen in New Delhi as politically driven and will have a bearing on US-India collaboration and mutual trust unless the incoming Trump administration drops the prosecution……Much will be depend on how the next US administration seeks to chart the relationship with India.”
The Modi, Adani relationship: For the moment, it remains unclear if Modi will look to distance himself from Adani.
Chellaney however, emphasises, that if India has a national champion, “it’s the Adani Group. Modi and the billionaire share deep links going back decades in their home state of Gujarat, and Adani was instrumental in helping revive the prime minister’s reputation when he came under attack over religious riots in 2002.”
Modi may possibly, use his "personal ties with Trump and the US’s strategic need for India’s support in the region as leverage. And while Trump shares a mutual admiration with Modi, he’s long called out India for taking advantage of the US on trade.”
