Impact of Trump's Trade Policies on India
Negative Aspects
- Reciprocal Tariffs:
President Trump's call for reciprocal taxes targets countries with unfair trade practices. India's high tariff and non-tariff barriers make it vulnerable.- The average effective tariff rate on US exports to India is 9.5%, compared to 3% on Indian exports to the US, showing a significant gap.
- High tariffs are seen particularly in sectors like agriculture, automobiles, and pharmaceuticals.
- India ranks second in Asia, after China, in implementing antidumping measures against the US.
- Lowering tariffs, particularly on agricultural products, poses political challenges and could threaten domestic competition due to the MFN clause.
- Sectoral Tariffs:
Trump announced a 25% tariff on steel and aluminum imports, with more tariffs expected on automobiles and pharmaceuticals.- These sectors make up about 16% of India's goods exports to the US, with pharmaceuticals being significant.
- Steel, aluminum, and autos have a smaller export share but risk being impacted by global export redirection leading to domestic price pressures.
- Despite these vulnerabilities, exports to the US account for only 2.2% of India’s GDP, suggesting a limited overall impact.
- Trade Imbalances:
India's trade surplus with the US, at $38 billion in 2024, contributes to its position among the top 12 countries with US trade deficits.- Increased purchases of US energy and defense equipment may slightly adjust the trade balance but with minor overall effects.
Positive Aspects
- An Alternative to China:
India could benefit from Trump's tariffs on China by capturing trade and investment redirected from China.- India stands to gain from the global value chain shift, benefiting its large consumer market.
- FDI trends show increased interest from US, European, and developed Asian companies relocating to India.
- Third Country Risk:
US scrutiny on China's tariff circumvention through third countries could benefit India by diverting more trade. - Strategic Ally:
India's focus on low- to mid-tech manufacturing complements the US's high-tech ambitions, allowing room for export market growth.
Overall Assessment
Trump's tariffs present mixed outcomes for India. While there are risks from reciprocal tariffs and sectoral pressures, opportunities arise from trade diversions and supply-chain shifts, potentially positioning India as a relative winner in a challenging global trade environment.
