The Best of Enemies: Top trade offender India braces for crash into Trump's tariff reality
Shubham Ghosh
New Delhi: President Donald Trump and the Indian Prime Minister Nardendra Modi might seem to get along swimmingly, but when it comes to Trump's "reciprocal tariffs" on April 2, trouble seems to be brewing. On Tuesday, March 11, 2025, the White House’s concerns about India’s high tariffs on American goods was evident once again when Press Secretary Karoline Leavitt held up a “handy dandy” chart showing India's 150% tariff on US alcohol and 100% on agricultural products.
“You look at India, 150 per cent tariff on American alcohol. Do you think that's helping Kentucky bourbon be exported into India? I don't think so. 100 per cent tariff on agricultural products from India,” Leavitt said. Leavitt grouped India along with Canada and Japan as countries that have imposed massive tariffs on US goods.
Despite India and the US's close strategic, technological, geopolitical and economic ties, India cannot simply wish away tariff-related concerns from Trump’s America. While the South Asian giant has been so far been spared tariffs from the second Trump Administration, the mercurial president’s warning about reciprocal tariffs has left Indian policymakers worried.
New Delhi has thus far refrained from taking a confrontational stance against Washington, largely due to to common challenges both countries face, but it has to work on other geo-economic diplomatic channels to assure Washington DC about trade and associated benefits. Currently, India imposes an average tariff of 17%, while the US maintains a much lower average of 3.3%.
Modi's attempts to stem the oncoming tide
It was no surprise then that PM Modi rushed to the US in February, less than a month after Trump’s second term began. The visit saw the announcement of the Bilateral Trade Agreement between the US and India which marks a key development in the ties between the two countries. The mutually beneficial agreement seeks to boost market access, decrease tariffs and non-tariff barriers and improve supply-chain integration. But Modi’s visit to the US is unlikely to settle major issues related to tariffs.
The second Trump administration, for example, wants to strike balanced trade deals with any country that has a trade deficit with the US. Trump scrapped the North American Free Trade Agreement with Canada and Mexico and negotiated a new US-Mexico-Canada agreement on terms more favorable to the US. With India it wants something similar – a comprehensive trade deal involving all sectors.
India already feeling the impact
India’s exports, however, are already feeling the heat. The US president’s announcement on reciprocal tariffs commencing April 2 has also added to concerns.
The imposition of reciprocal tariffs on countries would increase import taxes to match the tariffs that the trading partners impose on American goods. A report by Bloomberg has said India could be hit hard due to a big difference in import duties with the US, which is about 10 percentage points on average.
Experts at Morgan Stanley said countries such as India and Thailand may see tariff hikes of four to sex percentage points if the Trump Administration went ahead with the tariff adjustments. The potential losses could be around $7 billion a year, as estimated by Citi Research. Several key sectors such as automobiles and agriculture would be particularly vulnerable.
India has so far tried to put on a brave face. Trump has said it was very difficult to sell anything in India and claimed that New Delhi has agreed to slash its tariffs “because somebody is finally exposing them”. The Indian government, however, told a parliamentary body that no such commitments had been made on the issue.
A one-sided trade
While the US was India’s largest trade partner in 2024, the latter ranked 10th on the list of the US’s largest trading partners for the same year. While the size of the bilateral trade stood at nearly $130 billion last year – a record – India had a bigger reliance on the US for trade.
The trade deficit between the US and India is ever-widening with the former importing $45.7 billion more from the Asian economy than it exported there in 2024. US’s imports from India, on the other hand, accounted for less than three per cent of all imported goods in the same year.
Recently, Indian Finance Minister Nirmala Sitharaman curbed import duty on US motorcycles in the national budget, a huge boost for American makers like Harley Davidson.
Jitin Prasada, India’s junior minister for commerce and industry clarified New Delhi’s dual strategy of doubling bilateral trade with the US to $500 billion by 2030 and engaging with the US to improve market access and lower trade barriers.
To avoid more escalations in trade and safeguard exporters’ interests, New Delhi is also reportedly reviewing its tariff structure, particularly in areas such as automobiles, leather, textiles, electronics, pharmaceuticals and agriculture.
Indian Commerce and Industry Minister Piyush Goyal told Parliament on March 11 that the Modi government was engaging with Trump officials to remove tariffs and non-tariff barriers and improve trade. Goyal, who returned from an official visit to the US recently, said his ministry was planning to meet export stakeholders this week.
Representatives from key sectors are likely to present their cases on tariff concessions that could be offered to the Trump administration during trade negotiations, The Indian Express newspaper reported.
While the US imports pearls and semi-precious stones, electrical equipment and machinery, pharmaceutical products, nuclear reactors and machinery, and mineral fuels and oil from India, the US exports mineral fuels, oil, distillation products, metals, machinery, aircraft, spacecraft, plastics and others to India.
The US is the third largest investor in India with cumulative foreign direct investment inflows of $67.76 billion from April 2000 till September 2024.
How the Indian media is reacting
Kanwal Sibal, India’s former Deputy Chief of Mission in Washington, said in an opinion piece in the country’s NDTV news website that President Trump's quest for equality of treatment between the US and India in the matter of trade was very simplistically and unfair. He rejected the view of special and differential treatment.
Dr Shamika Ravi, member of the Indian Prime Minister’s Advisory Council told the Moneycontrol news outlet that India had a window of opportunity in the current situation, even as the opposition slammed the Modi government after Trump claimed that India agreed to slash tariffs.
Jairam Ramesh, a senior leader of the opposition Indian National Congress, questioned whether the government had taken into account the interests of Indian farmers and manufacturers.
“I think the current situation is a window of opportunity to lower tariffs and see what are the reforms needed in trade for it to directly feed into growth,” Ravi was quoted as saying in an interview.
A Wire article titled ‘Modi Government in Damage Control Mode After Trump Reveals Tariff Concessions’ spoke about the opposition’s allegations that the government had surrendered the country’s national interests and that average applied tariffs have been reduced for other developed countries such as Australia, Switzerland, the United Arab Emirates and Norway.
The Economic Times said in a report titled ‘Is India already feeling the heat of Trump’s tariff threats?’: “If the US implements reciprocal tariffs on farm products, India’s agricultural exports, which face some of the largest tariff differentials, will likely see the most significant impact. On the other hand, sectors like textiles, leather, and wood products are less vulnerable due to smaller tariff differences or their limited share in US-India trade.”
For India, Trump’s reciprocal tariffs present a significant challenge. On one hand, India is keen on building a flourishing trade relation with the US, but on the other, it also has to safeguard sensitive domestic sectors against foreign competition. A calibrated stroke of liberalization could be the key for New Delhi whereby the reduction in tariffs is matched with domestic protectionism and export incentives.