Inter-ministerial huddle on possible trade policy changes under Trump 2.0

“We are engaging in internal ministerial discussions to sensitise ministries and are studying the [‘America first trade policy’] memorandum and will take a call on what should be the course of action. The memorandum, at the moment, is directing US departments to look at possible causes of the trade deficit in the next two and a half months,” the official said. “There is a Trade Policy Forum (TPF) with the US due, and that is something both countries will take a call on. As of now, the plain reading of the memorandum does not pose a concern. US action can even positively impact us. We will only be taking measures if it affects us negatively. Several US official confirmations are due…” the official said.

Notably, the TPF is a platform for the US and India to discuss and resolve trade and investment issues. The TPF is a key part of the bilateral trade relationship between the two countries. Concerns over the next TPF meet arise as Trump has also directed the United States Trade Representative (USTR) to review existing US trade agreements and sectoral trade agreements and to “recommend any revisions that may be necessary” or appropriate to achieve or maintain the general level of reciprocal and mutually advantageous concessions with respect to free trade agreement partner countries.

Moreover, India, the US, and 12 other members, including Australia, Indonesia, and Japan, signed an Indo-Pacific Economic Framework (IPEF), a regional agreement to increase economic integration and cooperation in the Indo-Pacific. India is a signatory to three pillars of the IPEF: supply chains, clean economy, and fair economy. India’s final consumer goods segment may emerge as a significant trade target, as the country recorded its largest trade surplus with the United States in 2023, policy research institute Research and Information System for Developing Countries (RIS) said in a report.

“The trade equation tilted markedly in India’s favour, with imports from the US amounting to $2.9 billion while exports surged to $26.6 billion,” RIS said.

“The new [US] trade regime may target a select few high-value items, particularly from the pharmaceuticals, fisheries, and jewellery sectors. If the trade restrictions adopt a broad-based approach, segments such as chemical products, made-up textiles, and wood pulp may also come under scrutiny. In the event of product-specific actions, exports from the pharmaceuticals, fisheries, and gems and jewellery sectors would likely bear the brunt. Conversely, if the measures expand to entire sectors, vulnerabilities may extend to pharmaceuticals, gems and jewellery, textiles, and fisheries, posing challenges to these crucial sectors,” the report said. The US is India’s largest trade partner, with bilateral trade reaching almost $120 billion in FY24 — slightly higher than India’s China trade. However, unlike China, India’s trade relationship with the US is favourable, which makes the US a vital source of foreign exchange.

Despite attempts to diversify exports, India’s dependence on the US has grown over the past decade. According to official 2022–23 data, the US accounts for 18 per cent of India’s exports, compared to 10 per cent in 2010–11. India’s export basket to the US is well-diversified, benefiting industries ranging from textiles to electronics and engineering. However, Trump’s promised tariffs may primarily target China, given the far larger trade imbalance. A fresh round of US–China trade wars could benefit India by attracting investments and manufacturing away from China.

During his first term, Trump invoked national security provisions to impose a 25 per cent tariff on steel and 10 per cent on aluminium from India and other countries, breaking from the practice of not targeting friendly nations. Biden chose to negotiate with India and the European Union rather than lifting these tariffs. Trump has repeatedly voiced his frustration at high tariffs in India, which affect US companies like Harley-Davidson. At a rally last month, he criticised China, Brazil, and India, and called India a “tariff king” and “trade abuser”.