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Former US President Donald Trump on Tuesday referred to India as a “very big abuser” of US-India trade relations during his re-election campaign rally, signalling that the Republican presidential nominee could impose increased tariffs on Indian goods if he were to win the November elections. Trump has frequently called India the “tariff king” citing high tariffs and earlier this month said he would introduce 100 per cent tariffs on countries attempting to move away from using the US dollar for international trade.
Trump’s position on trade relations with India gains importance as polls continue to predict a closely contested race against Democratic presidential nominee Kamala Harris. However, a Reuters/Ipsos poll conducted following the presidential debate between the two showed Harris marginally leading Trump 47 per cent to 42 per cent. Recent polls indicate Harris has further increased her lead.
The US is India’s largest trade partner, with total bilateral trade nearing $120 billion in FY24, only marginally higher than that with China. However, unlike China, India’s trade with the US is not only more balanced, but also sharply in India’s favour, making trade with the US a key source of foreign exchange earnings. Notably, India runs a goods trade deficit with nine of its ten top trading partners, with the US being the only major economy to which India exports more than it imports.
Despite efforts to diversify its exports, India’s dependence on the US has increased over the past decade. According to official data from 2022-2023, the US accounts for as much as 18 per cent of India’s total exports, compared to 10 per cent in 2010-2011. Furthermore, India’s export basket to the US is well diversified, benefitting a range of industries from labour-intensive textiles to capital-intensive electronics and engineering sectors.
The latest official data for August 2024 showed that India exported goods worth $6.5 billion to the US, a figure higher than the combined exports to the next three destinations – the UAE, the Netherlands, and the UK. Trade experts have highlighted India’s reliance on Western markets, particularly the US, which makes it vulnerable to external shocks, such as the demand slowdown seen in recent quarters.
Fitch Ratings, in a report last month, indicated that the outcome of the US elections in November could lead to a renewed surge in US trade protectionism. While the tariffs have been particularly targeting China, the agency noted that several countries, including Canada, Mexico, and Vietnam, could be affected. India, being the eighth-largest importer to the US, could also face repercussions.
The rating agency also pointed out that the overall US goods trade deficit averaged $1.1 trillion in 2022-2023. Although the trade deficit with China has narrowed since 2018, it has been offset by increasing deficits with other countries. “Looking at the evolution of trade shares by country, China’s share of US imports peaked in 2018 and has since declined. As supply chains have diversified, the shares of other countries, particularly Mexico and Vietnam, have risen,” Fitch said.
“The US’s top 10 trading partners account for about 70 per cent of all goods imports, measured by value. Mexico, China, and Canada are by far the largest, accounting for over 40 per cent of US imports. In terms of exports, Mexico and Canada stand out – the US accounts for around four-fifths of all goods exports from these countries, and in GDP terms, exports to the US account for more than 20 per cent in Mexico, Canada, and Vietnam,” the report added.
In a general sense, American protectionism has increased even under current President Joe Biden. Citing unfair trade practices, the US increased tariffs on Chinese Electric Vehicles (EVs) from 25 per cent to 100 per cent in 2024. The tariff rate on certain steel and aluminum products was also increased from 0–7.5 per cent to 25 per cent in 2024. While the tariffs did not impact India directly it resulted in container shortages amid a surge in Chinese shipments to enter the US before the tariffs came into effect.
An S&P Global report noted that heightened scrutiny of imports from China amidst cooling trade relations between the two countries has led to higher inflation in the US. While Trump faced criticism for raising tariffs, Biden not only maintained tariffs on Chinese products but also increased them. Notably, during Biden’s presidency, India and the US resolved all outstanding trade disputes at the World Trade Organization.
