Trump’s Tariff Threats and Their Impact on Indo-US Trade Relations Explained

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US President Donald Trump recently referred to India, China, and Brazil as major “tariff-makers” and warned of increased tariffs on goods imported from these countries, with a clear emphasis on putting America’s interests first. This poses a risk to India’s exports, particularly textiles and pharmaceuticals, making them less competitive in the US market.

In 2018, during his first term, Trump’s administration imposed higher tariffs on aluminum and steel, triggering retaliatory actions, including from India. India and China are the US’s largest trading partners in terms of merchandise trade. India hopes to address the tariff issue during Prime Minister Narendra Modi’s upcoming meeting with Trump at the White House in February.

Trade Between India and the US: A Snapshot

The US is India’s largest export destination, accounting for over 18% of India’s total merchandise exports. In 2023-24, India exported goods worth $77.5 billion to the US, more than the combined value of its exports to the next three largest trading partners. However, India’s imports from the US remain relatively smaller, contributing to a growing trade deficit for the US, which is part of the reason for Trump’s tariff threats.

Key Trade Items

India’s imports from the US include petroleum products, precious stones, medical equipment, aircraft, and military supplies, as India reduces its dependence on Russian defense equipment. On the other hand, India exports petroleum products, pharmaceuticals, electrical machinery, apparel, cotton fabrics, and electronic components to the US.

Trump’s Demands from India

Trump is calling for India to lower its tariffs on US goods and increase its purchases, particularly military equipment. India’s reduction in tariffs on Harley-Davidson motorcycles in 2019, following Trump’s demand, illustrates his approach to trade negotiations. However, India maintains higher tariffs on certain goods, such as whiskey, wine, and automobiles, with some reaching up to 150%.

India’s Stance on Tariff Reductions

India currently imposes tariffs on US goods similar to those from other countries with no free trade agreement (FTA). While an FTA could have paved the way for tariff reductions, there are no provisions for tariff cuts in the Indo-Pacific Economic Framework for Prosperity (IPEF). Additionally, any tariff reductions would likely benefit other countries like China and Vietnam more than the US, and India is cautious about making moves without a clear list of US demands.

Increasing Purchases from the US

Although trade is mostly driven by commercial decisions, India could potentially increase its purchases from the US, especially in defense, as it looks to diversify its sources. However, India would only purchase more US crude oil if the American companies offered better deals compared to countries like the UAE and Russia.

Beyond the Trade Deficit: A Broader Economic Relationship

Trade negotiations should also take into account the broader economic ties between India and the US, beyond just the trade deficit. The US has a significant presence in India across various sectors, including technology, finance, and e-commerce. American companies such as Microsoft, Meta, Alphabet, Amazon, and Walmart have large user bases and investments in India, making the relationship multifaceted and not just focused on trade.

The ongoing trade negotiations will likely play a crucial role in shaping the future of Indo-US relations.

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