India stays measured amid Trump’s tariff war, pushes for US trade deal
Summary
- As China, Canada and other nations retaliate against the US' reciprocal tariffs, India is positioning itself as a balanced negotiator, hoping for a fair bilateral trade agreement with the US and looking for opportunities in a new world order.
New Delhi: India will refrain from taking retaliatory action against the US’ reciprocal tariffs or making sharp public responses against Washington, keeping trade diplomacy at the centre of its strategy, a senior government official said.
As a global tariff war unfolds in response to US President Donald Trump’s additional tariffs on more than 60 nations, India is taking a calm and measured approach, positioning itself as a balanced negotiator, the official said.
“We are focusing on dialogue, not confrontation. India is the only country offered the opportunity to negotiate a bilateral trade agreement (BTA) with the US. That itself is a signal of mutual respect," the official said, who spoke on condition of not being named.
The US is India’s largest trading partner, and one of the few countries with which India had a trade surplus in 2023-24. Mint was the first to report on 3 April that New Delhi would not adopt a tit-for-tat approach and will push for a swift trade pact with the US.
India faces an additional 26% average tariff on its exports to the US, which is lower than the levies imposed on several other Asian exporters.
Cambodia faces the highest at 49%, followed by Vietnam (46%), Sri Lanka and Myanmar (44% each), and Thailand (36%). China’s average tariff stands at 34%, while Indonesia faces 32%, Pakistan 29%, and Bangladesh 28%.
As per the official, despite the shifting tariff landscape, Indian exports are expected to hold steady at current levels this financial year, with momentum expected to build in the next. “If energy prices stay soft, we don’t anticipate much demand destruction in the US," the official noted.
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Diversifying India’s exports
India is cautiously optimistic that global supply chain diversification—accelerated by the tariff war and rising production costs in China—will open new doors for Indian exporters.
India exports over 7,300 commodities to the US, including IT services, engineering and electronic goods, gems and jewellery, marine and agricultural products, pharmaceuticals, light crude oil, textiles, and metals like steel and aluminum.
Domestic sectors such as gems and jewellery, marine products, semiconductors, furniture, and rubber are particularly vulnerable to Trump’s reciprocal tariffs as these are heavily reliant on US demand. About 85% of India’s semiconductor exports are destined for the US.
Indian officials are in dialogue with stakeholders in such sectors to identify alternative export markets, the government official said. “Diversification is key. Where the US market tightens, we must be ready elsewhere."
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That said, India is hoping for its ongoing negotiations with the US for a bilateral trade agreement to be concluded soon, and fairly.
“New Delhi initiated early talks with the US, gaining a first-mover advantage in what is likely to be a broad-based trade pact. Simultaneously, India is in negotiations with at least seven other countries for free trade agreements, adding layers of resilience to its trade architecture," the official said.
“The upcoming agreement is expected to cover multiple sectors, providing a cushion to Indian exporters amid renewed uncertainty in global supply chains. India hopes the BTA with the US will be fair, balanced, and mutually respectful."
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Dumping threats and domestic opportunities
India is also closely monitoring the risk of countries such as China and Vietnam dumping products in India at below-market prices as a fallout of the US trade war.
“We are alert and will not hesitate to take strong anti-dumping measures where necessary," the official said, reflecting a broader shift in India’s trade posture—open, but guarded.
While high-tech exports like smartphones may face some pressure under the new tariff regime, the government expects India’s large and growing domestic market to cushion any hit to manufacturing. “There may be a minor dip in outbound shipments, but overall production will remain unaffected," the official said.
“Export-dependent countries will bear the brunt of these tariffs if they come into effect. (But) India, with its strong domestic consumption, will likely remain a bright spot," said Viram Shah, founder and chief executive of Vested Finance. “However, these tariffs increase the risk of a global recession if fully implemented."
“The world is going through major economic shifts, and the diamond industry is no exception," said Vipul Shah, past chairman of the Gems and Jewellery Export Promotion Council. “In any case, we will work together—alongside other organizations and companies—to minimize the impact on the global diamond industry."
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A trade surplus
India’s merchandise exports to the US have grown in recent years. Indian exports to the US increased to $78.3 billion in 2022-23 from $75.6 billion in the year prior. Although FY24 saw the exports drop slightly to $77.5 billion, primarily due to supply chain disruptions, the long-term trend remains positive.
In FY24, bilateral trade between India and the US stood at a record $118.2 billion as against $128.8 billion in FY22.
In FY24, India had a trade surplus of $36.8 billion with the US—with Indian exports to the US at $77.5 billion and American exports to India at $40.7 billion.
The US is also the third-largest investor in India with cumulative foreign direct investment inflows of $65.2 billion from April 2000 to March 2024.
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