Following Trump’s election victory last November, India initiated a comprehensive sector-wise assessment, devising multiple scenarios to brace for potential tariff hikes on exports to the US under Trump’s administration, as reported by ET in December.
India’s prospects under the Trump administration
Trump’s memorandum titled “America First Trade Policy,” released on his first day in office, could present an opportunity for India. The memo instructed the United States Trade Representative (USTR) to pinpoint countries to engage in trade agreements, either bilaterally or within specific sectors, to enhance export access for various American entities. The Indian government is currently reviewing the memo. “We are analyzing the memo and assessing its implications before creating any strategy… At this stage, based on an initial reading, I don’t see anything overly concerning. Our evaluations have yet to materialize into action,” officials informed PTI. The government is also waiting for the official confirmation of the key trade positions in the US.
Indian and US diplomats aim to organize a meeting between Prime Minister Narendra Modi and Trump in Washington in February, according to sources who spoke to Reuters. However, the likelihood of a February meeting remains uncertain. There is a possibility for a bilateral discussion later in the year, especially when the Quad leaders—comprising India, Australia, Japan, and the US—reconvene at an annual summit hosted by India.
Indian officials are contemplating a limited trade agreement with the US within one scenario, according to Bloomberg sources. The proposed plan would involve lowering certain “most-favored nation” tariffs imposed on countries with which India lacks a bilateral trade deal.
Last month, Reuters reported that India is gearing up to propose tariff reductions on certain agricultural and other goods primarily imported from the US, aiming for a more extensive trade and investment deal once Trump assumes office. To address Trump’s proposal of a “reciprocal tax” on Indian goods due to high tariffs, some officials from the Indian commerce ministry are contemplating reductions on specific items like pork, as revealed by a senior government source. Currently, India enforces a 45% import tariff on pork, predominantly sourced from the US. Additionally, tariffs could see reductions on premium medical devices such as pacemakers and luxury motorcycles like Harley Davidson, according to an official with direct knowledge of trade matters, who cited existing tariffs ranging from 25% to 60% on those products. To alleviate Trump’s concerns regarding the trade deficit, officials have also suggested increasing purchases of LNG and defense equipment from the US, as reported by Reuters.
“This presents an opportunity,” noted Arvind Virmani, a government advisor and member of the state-run policy think tank NITI Aayog, speaking to Reuters. “Both the US and India would benefit from shifting more critical and sensitive manufacturing to India rather than relying on China,” he added, suggesting a more ambitious “preferential trade cum investment deal” than the previously discussed mini-trade agreement, which could be mutually beneficial for both nations.
Restarting India-US discussions from a prior standpoint
During Trump’s initial term, a proposed mini-trade agreement aimed at addressing trade discrepancies and enhancing trade relations through limited deals stalled due to disagreements over tariffs, access to markets, and intellectual property. The Biden administration similarly is not keen on a free trade agreement. India now seeks a broader agreement, as reported by Reuters, offering substantial concessions such as production-linked incentives for logistics companies and support for logistics sector.
Kenneth I. Juster, a distinguished fellow at the Council on Foreign Relations, and Mark Linscott, a senior advisor at the U.S.-India Strategic Partnership Forum and the Asia Group, expressed in ‘Foreign Policy’ that this time around, Modi and Trump should take advantage of the opportunity to forge a significant bilateral agreement.
They noted that although US-India economic relations have consistently advanced throughout the 21st century, they have not met expectations in comparison to the remarkable progress made in nearly every other aspect of the bilateral partnership. “However, there are grounds for optimism. Trump enjoys negotiating deals and is eager to enhance the US economy. His tariffs may serve as leverage to unlock foreign markets for US companies, creating jobs related to exports and reducing the bilateral trade deficit. Modi is a strategic thinker focused on fostering India’s economy and expanding its international role,” they stated.
“Both the United States and India aim to strengthen their economic influence in the Indo-Pacific region and mitigate China’s economic dominance. The moment is opportune, and the incentives exist for both leaders to overcome challenges and finalize a major agreement.”
(With contributions from agencies)