America First meets Aatmanirbhar Bharat: Future of India-US trade relations

The trajectory of US trade policy is a hot topic for discussion since US President Donald Trump joined office. During his election campaign and in the run up to his swearing in ceremony, the President has promised sweeping trade policy changes that prioritise US interests and could lead to far reaching global consequences.

On the first day of his Presidency, Trump announced a series of executive changes, and also launched the America First Trade Policy. In its present form, the document is first calling for an extensive review, when it states, “The Secretary of Commerce, in consultation with the Secretary of the Treasury and the United States Trade Representative, shall investigate the causes of our country’s large and persistent annual trade deficits in goods, as well as the economic and national security implications and risks resulting from such deficits, and recommend appropriate measures, such as a global supplemental tariff or other policies, to remedy such deficits.”

This ‘global supplemental tariff’ is being interpreted as a possible blanket 10% tariff on countries across the globe. Specific references are made in the document to Peaple’s Republic of China as well as the US MCA agreement. But it is clear that the US has all countries under the scanner.

Impact on India

During his speeches, Trump has repeatedly asserted that high tariff countries such as India, China and Brazil harm US interests. To address this, he has threatened to launch a range of tariffs – from universal baseline to country-specific tariffs. He has promised to impose tariffs on Canada and Mexico immediately and also threatened EU with tariffs.

As is known, the US is also threatening BRICS countries with 100% tariffs if they attempt to undermine the US dollar in international trade. With Indian PM Shri Narendra Modi expected to visit the US next month, it is significant that Trump has asked him to ensure a more balanced trading relationship and purchase more American security equipment.

While it is India’s largest export market, the US has a very high trade deficit with India at around US$ 35 billion in 2023-24. India is currently undertaking a comprehensive review of the America First trade policy according to a media report.

India’s major exports to the US in 2023-24 included the following:

• Diamonds (US$ 5.6 billion, 7.2% share)
• Smartphones (US$ 5.6 billion, 7.2% share)
• Other – Petroleum oils (US$ 4.4 billion, 5.7% share)
• Medicines (US$ 3.35 billion, 4.2% share)
• Photovoltaic cells (US$ 1.9 billion, 2.5% share)
• Vannamei Shrimp (US$ 1.7 billion, 2.2% share)

Trade experts feel that the immediate focus of Trump’s tariff policy is not India but China, given that the deficit with the latter is much larger at US$ 280 billion. However, if the US increases sanctions on Russia, India may have to opt for US crude oil as opposed to discounted Russian crude oil, which could cause inflationary pressures. On the other hand, India may look at the opportunity to replace China’s dominant share in US merchandise imports.

In the first Trump administration, the two sides had come to the negotiating table for a trade agreement, but could not come to a conclusion. They could not even come to terms on maintaining India’s benefits under the Generalised System of Preferences (GSP) regime. Some US industries, particularly medical devices, dairy and later IT products raised concerns about restricted market access for them in India. Ultimately, they could not come to terms on this ‘smaller trade agreement’.

Nothing moved forward in this regard under the Biden administration. While the US has shown no interest in a trade agreement with India, the latter has also refused to participate in the trade pillar under the Biden administration. Something significant did happen, however, when the two sides resolved all 7 outstanding disputes at the WTO in 2024. These included:

• India’s appeal against the US’s imposition of tariffs on imports of steel and aluminium products from India; the US appeal against India’s retaliatory tariffs;
• India’s renewable energy subsidies for solar cells and modules under Jawaharlal Nehru National
  Solar Mission;
• India’s appeal over similar subsidies for solar cells and solar modules by eight US state governments;
• US appeal against India’s export subsidy programmes;
• India’s imposition of countervailing duties on imports of certain hot-rolled carbon steel flat products from the US.