Trump and the tariff threat
In his first presidential address, Trump threatened to impose tariffs on several countries with whom the US was running a trade deficit. India is one of these. Indian exports to the US in FY2024 were around $77.5 billion, while its imports from the US were around $40.7 billion. India had a trade surplus of around Rs37 billion, or a little over $3 billion per month. To put this into perspective, the US trade deficit for a month is nearly $80 billion. The US trade deficit is, in a way, equivalent to almost the entire trade of India.
While it is true that no tariffs will be imposed without a review being carried out by the US Trade Office to identify trade policies which may seem unfair to the US in the context of the new America First policy, it may be sooner rather than later that the US will try to impose tariffs on imports from several countries. India has already gone on record stating that it will likewise impose retaliatory tariffs on goods exported from the US. These include precious and semi-precious stones, minerals, oil, electrical and electronic goods, agricultural produce such as apples, chickpeas, and Californian almonds.
The tariffs from the US will undoubtedly make goods from India more expensive. Likewise, the retaliatory tariffs will only make goods exported from India — including engineering goods, pharma, steel products, textiles, cashew nuts, tea, spices, amongst others — more expensive for US consumers. However, in the case of US goods, except for agricultural produce, the bulk of the goods are for industries, which may not directly impact consumers as much.
If Trump really starts raising tariffs across his major trading partners, and those companies, in turn, opt for retaliatory tariffs, goods for US consumers would become significantly more expensive. Retaliatory tariffs, of course, impact the sale of goods in the importing country. In Trump’s last term, the US had imposed tariffs on steel and aluminium products from India, and exports suffered as a result.
Tariffs and resultant retaliatory tariffs hurt both nations, and as such, tariffs as a weapon can at best be used as a negotiating tool. It is likely that the threat of levying tariffs could allow the US to extract more concessions from its trading partners, which may open up more markets for US goods. Of course, trade cannot be done in isolation, and several other factors are tied to it, such as FDI, FPI, and other investments. There is no easy way out to settle trade tariffs unless companies engage with other importing/exporting companies directly.
Tariff wars will only lower global trade, with countries entering into more and more bilateral trade agreements where zero or minimal taxes, mutually agreed upon, are levied by both sides. India currently has 13 Free Trade Agreements with countries and regional trade agreements, in addition to six preferential trade agreements.
India, for one, needs to diversify its exports. It is already exporting, to some extent or another, to more than 215-220 countries, according to 2024-25 data (up to November). However, exports to nearly 200 countries account for less than 1 per cent of total exports. There are only three countries where exports exceed 5 per cent: the US, UAE, and the Netherlands. The highest is the US, with more than 18.6 per cent, followed by the UAE at around 8.3 per cent.
Contrary to public perception, exports to China (PRC) account for just 3.6 per cent. India does need to try and increase its exports to other countries. While the US, UK, and EU are the markets that almost all countries are targeting, it makes sense to explore other markets which are as much in need of Indian products as the developed countries. In the African continent, which has the next largest number of developing countries, only Tanzania and South Africa have exports of more than 1 per cent. Surely the other 52 countries can be targeted, so as to have at least 10 more countries with exports of more than 1 per cent? Goods are not so competitive that they cannot be exported to more countries directly. Project exports are also an area where many countries, especially those embarking on or planning mega infrastructure projects — be it in railways, airports, or waterworks—can be targeted.
Besides geographic diversification, India also has to make efforts to export higher value-added goods, even as it builds on its commodity exports of tea, sugar, coffee, and engineering goods, where margins are low and scale is entirely dependent on volumes. Instead of merely being suppliers to foreign labels, Indian companies need to establish more of their own brands of Made in India products, which can become more respectable names than other mass-scale exporters.
Undoubtedly, this is not a one- or two-year target but rather a 5-10-year blueprint that needs to be drawn to make a meaningful dent in the global markets.
