Editorial: Trump’s Global Tariff Weapon – India’s Odds, Options, Opportunities
The past decade has seen marked increase in weaponization of trade in form of targeted government interference with exports and imports and widespread resort to state funded subsidies, all applied unilaterally or invoked in name of goals that go beyond trade. It has been done so because entrenched concerns about national sovereignty have combined with heightened geopolitical rivalry. The evidence is stockpile of G20 import restrictions has grown more than tenfold since 2009 and continues to grow. The increased frequency and complexity of distortive subsidies is according to a collective report by the IMF, World Bank, WTO and OECD, bringing significant discord to the trading system.
What has made trade weaponization possible?
The simple answer to this question is availability of specific weaponry in trade armoury and willingness of people to see it used. Despite over eighty years of multilateral trade negotiations and plethora of preferential trade agreements, there remains considerable scope to use both tariff and nontariff measures as a weapon.
Conditions for trade to be considered as weaponised
For trade to be considered as weaponised, one of two conditions needs to apply. The first is that trade restrictions are imposed unilaterally as an exercise power, outside disciplines of World Trade Organisation (WTO). A second condition for weaponization is that there is ulterior motive invoked that goes beyond trade.
Purpose of trade weaponisation
Trade weapon is invoked for several purposes
To sanction aggression –as with Russia’s invasion of Ukraine
To arm global value chain in pursuit of increased self-reliance –as sought by leaders of two countries among beneficieries of open market – France’s Emmanuel Macron and China’s Xi Jinping
To execute trade remedies in exercise of self-defenceas with Donald Trump, in his first term as President of United States (US) and Joe Biden – steel and aluminium tariffs imposed unilaterally, invoking threats to national security
US, Reciprocal Tariff and India
Donald Trump in his second term as President of US was expected to shake up the global order. But few had anticipated that US would initiate world-wide reciprocal tariffs war. Trump’s recent tariff announcements sent shockwaves through markets. India, one of US’s top trading partners has plenty to lose. “India is a very high tariff nation,” said Trump. This is second time that Trump spoke about India’s trade tariffs. Previously, he referred to India as a “tariff king”. Criticising India for its tariffs, he described them as unfair
US has announced that it will impose reciprocal tariffs on Indian imports starting 2nd April 2025. The policy outlined by President Donald Trump aims to mirror India’s tariff structure on US exports, applying equivalent duties on Indian goods entering US. India will feel the heat in various areas since US is largest trading partner of India, with total goods trade reaching $129.2 billion in 2024. US exports to India: $ 41.8 billion, a 3.4 per cent increase from 2023 and US imports from India: $87.4 billion, a 4.5 per cent rise. Trade deficit $45 billion, with US aiming to address this imbalance. Indian exports worth billions of dollars hang in balance in variety of fields - IT services, pharmaceuticals, automobiles, medicines. The reciprocal tariffs could hit 87 per cent of its total and exports to US worth $66 billion and pose challenges for Indian exporters who rely heavily on US market.
Among India’s top exports to US, packaged medicines led at $10.4 billion, followed by diamonds ($7.61 billion), broadcasting equipment ($6.18 billion) and petroleum products ($522 million) as of November 2024. Key US exports to India included crude petroleum ($5.5 billion), coal briquettes ($4.61 billion), gas turbines ($2.39 billion). With 17.7 per cent of India’s total exports heading to US, these tariffs could have substantial impact on critical industries.
The policy outlined by President Donald Trump aims to mirror India’s tariff structure on US exports, applying equivalent duties on Indian goods entering US. Over years, India’s tariff structure has seen fluctuations. While US tariff on Indian goods remained relatively stable – rising from 2.72 per cent in 2018 to 3.91 per cent in 2022 before slightly declining to 3.83 per cent in 2023, India’s tariffs have increased more sharply, from 11.59 per cent in 2018 to 15.30 per cent in 2022. Trump has justified this as base for US reciprocal tariff policy. US had declared a 26 per cent discounted reciprocal tariff on India on 2nd April 2025
What can India do to offset impact of reciprocal tariffs?
With US tariffs threatening key export, India must look elsewhere to soften the blow. India will have to boost domestic manufacturing under ‘Make in India’ and secure trade agreements with Europe, ASEAN and Gulf countries which can help India to reduce its reliance on American markets. India must diversify its trade avenues and must explore alternatives like strengthening regional alliances, expanding IT exports, promoting rupee-based trade to ease India’s dependence on US markets. India needs to prioritise high value-added manufacturing and boost its service sector with greater investment in R&D and workforce upskilling.
Boosting Atmanirbhar Bharat:Initiatives like ‘Make in India’ aim to reduce import dependency and strengthen local production.
Free trade agreements (FTAs):India is in talks with European Union (EU) and United Kingdom (UK) to secure preferential market access.
Strengthening regional trade alliances:Expanding trade with African nations and Latin America can be alternative export destination. India is deepening trade ties with Brazil, Argentina, focusing on exports of automotive components, agricultural products, pharmaceuticals
Manufacturing HubWith global supply chains shifting, India can position itself as alternative manufacturing hub, attracting companies looking to reduce reliance from China.
Multiple Global Alliances: India is already part of multiple global alliances that exclude US, providing alternative trade expansion opportunities.
BRICS (Brazil, Russia, India, China, South Africa):Trade between BRICS nations has grown at rate of 10.7 per cent.
Shanghai Cooperation Organisation (SCO):Trade within SCO was $650 billion in 2023. India’s participation enhances trade with China, Russia, Central Asian Nations
ASEAN and Indo-Pacific alliances:India is strengthening ties with Indo-Pacific Economic Framework (IPEF) and ASEAN
Middle East and North Africa (MENA):UAE, Saudi Arabia, Egypt are becoming key markets for Indian energy, textile and electronics exports
India is open to cutting tariffs on more than half of US imports worth $23 billion in first phase of trade deal two nations are negotiating, aimed at fending off reciprocal tariffs
India has turned to economic reforms in times of distress, with famous example being 1991, when India embraced liberalisation in face of deep financial crisis. Now with Trump’s tariff wars and global upheaval that has followed, India finds itself at another crossroad. India has unique opportunity to shape a new vision for global trade. This could be major opportunity for India to shed its protectionism and further open its economy. Potential US tariffs may have become a catalyst for reforms. By reducing tariffs, India could become regional and cross-regional magnet for trade and economic activity. This could help India create jobs, its needs at home. To provide meaningful employment to millions entering workforce every year, India must ramp up its manufacturing exports. India could have an opportunity because it now understands what to expect during negotiations
India is one of the few countries with which Trump administration has shown interest in negotiating a straightforward bilateral trade agreement. US has made its interest clear, and it is up to India to seize this opportunity and secure a balanced outcome. The two countries have huge opportunity to expand trade and a realistic path forward for doing this. Trump would like to improve US economy. His tariffs may well be designed to leverage to open foreign markets for US companies, thereby creating jobs related to exports and reducing bilateral trade deficits. Prime Minister Narendra Modi is a strategic thinker who is focused on growing India’s economy and expanding its role in the world. US and India both want to enhance their economic influence in the Indo-Pacific region and blunt China’s economic primacy. The time is ripe, and incentives are in place for these two leaders to beat the odds and make a major deal. President Donald Trump and Prime Minister Narendra Modi should now be ambitious and seek to negotiate a significant trade and economic arrangement. Once Trump tariffs go in effect, US and India should view this as only beginning of trade and economic dialogue. Both leaders should see logic of aspiring to conclude a broader deal. While political climate in Washington and New Delhi, with focus on promoting domestic manufacturing, would not support negotiating a full-blown free trade agreement, US Japan Trade Agreement (USJTA) negotiated in 2019 could provide a compelling model. USJTA is not free trade agreement, but it has some key features, particularly involving tariff cuts in several sectors on both sides
There is another reason for pushing Trump and Modi to strike a deal. Any agreement would provide not only economic growth opportunities but also strategic benefit. Chinese President Xi Jinping’s major source of influence in Indo Pacific is Beijing’s economic clout. India and US need to work together to counterbalance China’s dominant economic presence in the region. China is major trading partner of nearly every country in the region and an integral part of Indo-Pacific Trade Architecture through Regional Comprehensive Economic Partnership (RCEP), an agreement representing 15 countries and China has also applied for membership of 12 nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Neither India nor US is party to these two regional agreements. India withdrew from RCEP negotiations in final stages. US withdrew from CPTPP’s predecessor, the TransPacific Partnership in Trump’s first term.
India and US need to strike their own economic arrangement by resolving their long-standing trade and investment issues. US will benefit from increased market access in India. New Delhi will benefit by strengthening its economic ties with Washington, its leading trade partner and boosting its appeal as alternative supply chain hub for those looking to diversify away from Beijing. US and India should sit down at negotiating table and seize the opportunity to reinforce their strategic partnership by elevating economic relationship to new level.
India is at a critical juncture as US imposes reciprocal tariffs on its exports. By leveraging existing trade alliances, finalising new agreements, strengthening domestic manufacturing, India has opportunity to turn these challenges into an impetus for greater economic self-reliance and global competitiveness.
Articles in this edition of the Journal examine various dimensions of Diplomacy and Security related issues. All authors have presented their views on topics ranging from Rethinking Artificial Islands and Maritime Security to Political Crises in Bangladesh, Military Power of Quad to Rohingya issue, Quad Space Collaboration to Trump and Gaza peace with well-planned research on the topics with deep thought process. Their views will surely help in instilling the subjects and topics under discussion in the minds of the readers
(P.S. On 9th April 2025, US has paused implementation of reciprocal tariffs for 90 days for many countries including India keeping a baseline tariff of 10 % for all except China which is at 125 %.)
