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Trump’s Tariff Plan: Impact on Indo-US Trade Relations

On Wednesday, April 2, US President Donald Trump unveiled his long-anticipated reciprocal tariffs plan, introducing a new “baseline tariff” of 10%. He also announced additional tariff rates targeting various global economies, accusing them of having “looted, pillaged, raped, and plundered” the US.

For India, Trump imposed a 26% “discounted” reciprocal tariff, while China faced a 34% rate—on top of an existing 20% tariff. Trump has repeatedly labeled India, China, and Brazil as “tremendous tariff-makers” and warned of higher tariffs on imports from these nations, asserting his administration’s “America First” stance. Any increase in tariffs could make India’s exports to the US less competitive.

A History of Tariff Disputes

This is not the first time Trump has taken such measures. In 2018, during his first term, his administration imposed higher tariffs on steel and aluminum, prompting retaliatory actions from affected countries, including India.

The US and China are India’s top trading partners, and India has sought to resolve tariff tensions diplomatically. Prime Minister Narendra Modi met with Trump at the White House in February, hoping to find common ground.

How Large is India-US Trade?

The US is India’s largest destination for merchandise exports, accounting for over 18% in value. In 2023-24, India exported goods worth $77.5 billion to the US—more than the combined value of its exports to its next three largest trade partners. This trend has continued into 2024-25.

Conversely, US exports to India are significantly lower, making up just over 6% of India’s total imports. In fact, US exports to India declined by 17% to $42.2 billion last year. This trade imbalance has widened the US trade deficit with India, fueling Trump’s tariff threats.

The India-US Trade Basket

India’s Imports from the US:

• Petroleum crude and products – the largest share
• Pearls, precious/semi-precious stones & imitation jewelry
• Nuclear reactors, boilers, and electrical machinery
• Aircraft, medical equipment, and power plant machinery
• Military equipment – as India reduces its dependence on Russian arms

India’s Exports to the US:

• Petroleum products
• Drug formulations & pharmaceuticals
• Pearls, precious/semi-precious stones
• Telecom instruments & electronic components
• Electrical machinery, apparel, and cotton fabrics

Indian exports to the US have surged since the disruptions caused by COVID-19 in 2020.

What Does Trump Want from India?

Trump has long demanded lower Indian tariffs on US goods and increased Indian purchases from American industries. Following a recent call with Modi, a White House statement emphasized that Trump urged India to buy more American-made security equipment and work toward a “fair” trade relationship.

In his first term, Trump repeatedly criticized India’s high tariffs—especially the duties on Harley-Davidson motorcycles. India halved these tariffs in 2019, and the company now manufactures motorcycles locally.

Will India Reduce Tariffs?

India applies the same tariff rates to imports from the US as it does to other nations with which it lacks a Free Trade Agreement (FTA). If the two countries had signed an FTA, India might have considered tariff reductions on American goods. However, the Indo-Pacific Economic Framework for Prosperity (IPEF), a potential trade platform, does not include tariff cuts.

Budgetary policies also prevent India from offering tariff concessions to a specific country. Any broad tariff reductions would likely benefit competitors like China and Vietnam rather than the US. Experts suggest India should wait for a formal list of demands from Washington before making any commitments.

Can India Buy More from the US to Balance Trade?

Trade decisions are largely driven by private businesses and commercial considerations. While the US wants India to purchase more American weapons, this is only likely if the deals align with India’s strategic interests, particularly as it diversifies away from Russian defense suppliers.

Currently, India’s biggest purchase from the US is petroleum crude. However, India can only increase these imports if American oil companies offer more competitive deals than those from suppliers like the UAE and Russia.

Experts argue that the US should look beyond its trade deficit with India and recognize the broader economic relationship between the two nations. India is a key market not only for traditional US industries but also for financial services, technology giants (Microsoft, Meta, Alphabet), and e-commerce platforms (Amazon, Walmart). Social networking firms have their largest user base in India, highlighting the deep economic interdependence.