As all eyes look Washington-wards waiting with bated breath on what contours US President Donald Trump’s tariff announcements will take, India is hoping for the best, while preparing for the worst.
The stakes are, indeed, high. The US is India’s largest trading partner, but there is more to read between the lines. While the US is where India exports goods and services to the most, it imports the most not from the US, but from China. There is a definite imbalance between the two in volumes, as well as relationship — while the US is India’s biggest trading partner, India comes in barely amongst the top 10 when it comes to the US’s largest trading partners. Worse, the trade deficit (meaning India exports more to the US than vice versa, with higher tariffs imposed by India standing as a barrier) between the US and India has only grown over the years, and to Trump’s peeve, while he managed to reduce it a bit during his first term — remember all the hullaballoo over Alphonso mangoes and Harley Davidson bikes? It had spiked in recent years.
The US imports nearly ₹4 lakh crore worth of items more than India does, and by percentage, this has been inching towards as much as 3 per cent of all of America’s imports. Now, you know why Trump is peeved, and has been calling India a ‘big abuser’ of trade and more colourfully, ‘tariff king!’
Here are the three scenarios likely, and how India can work around the toughest googly that the Don can throw at New Delhi:
Dream scenario
The April 2 tariff announcements spare India completely. There were wild hopes this could well be a reality and that all of Trump’s talks were more campaign hyperbole aimed at the MAGA suckers — many policymakers and traders THE WEEK spoke to had emphasised that Trump was only threatening tariffs to ensure his negotiators for the Bilateral Trade Agreement (BTA) could put India on the back foot and get a good deal. But after his Sunday’s comments that all trading partners will be targeted, there is sure as hell confusion all around.
Point to be noted is that while Trump has already slapped tariffs on other big trading partners like Mexico, Canada (albeit, postponed implementing them till tonight’s announcements) as well as China, he has yet not singled out India forthright for any tariffs. And India had already agreed to buy more oil and gas from the US, a key ask, while Modi was in the US in February.
And India’s ace up its sleeve, and Trump’s justification for sparing India, can easily be the BTA being negotiated right now — US trade negotiators were in New Delhi last week and had even extended the parlays by an extra day into Saturday, raising big hopes on Raisina Hill.
The next best thing
Otherwise quite possible would be Trump slapping tariffs on some sectors, like on auto components etc., that he has already announced without singling out any country. Or adding one or two other sectors where Indian tariffs are unreasonably high, like on lenses, microscopes and medical instruments etc.
Economics is often more political than everything, and after having targeting India throughout his campaign and the general impression amongst the conspiracy theorists of growing statistics of Indian-American affluence in the States, Trump would be hard put if he leaves India alone out, after building it up all this while.
Worse comes to worst
A nightmarish scenario for India hoping that an export boom will be the springboard for its economy going up to $5 trillion and beyond into ‘Viksit Bharat’ will be if Trump slaps an across-the-board punitive tariffs for India’s inequality import duties, doing a tit-for-tat. This could have a direct correlation to jobs and GDP growth back home in India, considering that India exports the most to the US right now.
But, there is always hope eternal. The worst outcome possible could also be the first step for a brighter future, as economists point out how this could catalyse India to go in for stronger reforms to get more competitive, a sort of 1991 Liberalisation redux. And of course, there is always the BTA aimed to be signed in September-October that can reset and reboot the trade relations.