There are not too many countries with whom India has a favourable balance of trade. The US is one of them. A combative US President Donald Trump’s announcement of reciprocal tariffs on India from April 2 couldn’t have come at a worse time. If imposed, it will hit the Indian economy severely.
In a very long first address of his second term in a joint session of the Congress, Trump spoke on his plans for the US. Expectedly, he spoke the most at 9:48 minutes on immigrants and crime, followed by trade and tariffs for 8:29 minutes.
On tariffs, India found a special mention in a disparaging way. He said: “Other countries have used tariffs against us for decades and now it's our turn to start using them against those other countries… On average, the European Union, China, Brazil, India, Mexico and Canada …have you heard of them? And countless other nations charge us tremendously high tariffs than we charge them.”
“India charges us auto tariffs higher than 100 per cent,” he added.
President Trump Addresses Joint Session of Congress, March 4, 2025 https://t.co/KQFEFqTegj
— President Donald J. Trump (@POTUS) March 5, 2025
In 2024, the total goods trade between India and the US was valued at about $130 billion, of which US exports to India was estimated at about $42 billion while Indian exports to the US was at around $87 billion, yielding a trade surplus in goods to India at about $45 billion.
Therefore, the threat to impose reciprocal tariffs on India from April 2 would hit the Indian economy hard particularly when India and the US had just inked the 'Mission 500' plan or the ambitious target to take the total India-US bilateral trade to $500 billion by 2030.
What makes matters worse is the fact that a substantial chunk of US imports to India are high-end technology products that India cannot just do without, like electrical machinery and equipment, nuclear reactors and broilers, electronic products like transistors, diodes, other semiconductor devices and communication devices like phones and other wireless devices. As far as the US is concerned, it has in India as assured market, come what may.
Already between November 2023 and November 2024, India’s exports had fallen by $1.8 billion, while imports had increased by about $9 billion.
Moreover, the Indian rupee is devaluing at a much higher rate than the US dollar. The rupee depreciated about 4 per cent from October 2024 to February 2025. The immediate implication is that India’s trade imbalance will increase as will India’s share in international trade.
Foreign exchange reserves too showed a declining trend from a peak of $704 billion on September 27, 2024 to $640 billion on February 21, 2025—a 9 per cent fall.
The Indian stock market is also seeing a substantial slide and any kind of economic shock like reciprocal tariffs by the US will harm the investment climate of the country.
India will do well to take advantage of the fallout of Trump’s reciprocal tariff formula by increasing trade with the European Union, the United Kingdom, the Gulf countries and the BRICS countries including China.
Of course, the US economy won’t have it very easy either as it will heat up due to the likely trade wars with China, Canada, and others.
India will also lose out on the prospects of military products and systems finding a market in the US, particularly in the backdrop of the impending US policy review of the respective arms transfer regulations and negotiations for a Reciprocal Defense Procurement (RDP) agreement that was given a go-ahead during Prime Minister Narendra Modi’s recent visit to the US.
