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Opinion For India, the best time for a trade deal was within Trump’s first 100 days, the second-best time is now

With both the EU and the UK (as with the US), the sticking points are India’s high tariffs on automobiles, alcohol, dairy and agricultural products and in return, India wants to be exempt from strict environmental and labour standards.

Trump’s claim of India being an abuser of tariffs and the “tariff king” is not entirely baseless. (AP Photo)

May 1, 2025 04:55 PM IST First published on: May 1, 2025 at 04:47 PM IST

President Trump completed 100 days this week — a period marked by disruption in trade, disintegration of domestic and international institutions, deportation, downfall in the markets, diminishing the trust and confidence in the US economy, and destabilisation of the liberal global order. The end result of this disorder is that the US is staring into the barrel of the dreaded “R” word, with the US economy contracting by 0.3 per cent in the first quarter of 2025 and consumer sentiment seeing a sharp drop of 32 per cent.

The hurling of the established order into the territory of uncertainty and chaos has forced every other country to reexamine their trade and foreign policy vis-à-vis the US and each other. While some, such as the European Union, Canada and China have retaliated with reciprocal tariffs in response to the “Liberation Day” tariffs by the US, other countries, most notably Australia, decided against retaliation. Others, such as Japan and South Korea, are attempting to negotiate a trade deal with the US.

India’s approach has been a little different. It has been quietly working behind the scenes to ink a trade deal, which has witnessed two high-profile diplomatic exchanges — Prime Minister Narendra Modi visiting the US and US Vice President J D Vance touring India earlier in April. While it was nearly impossible to dodge the currently-paused “Liberation Day” tariffs, which was a mindless application of a crude formula, the baseline 10 per cent tariff and the 25 per cent tariff on auto parts can still hurt India.

Could India have avoided some of the uncertainty and harm if it had started from a better position and reached an agreement earlier? Trump’s claim of India being an abuser of tariffs and the “tariff king” is not entirely baseless. In 2023, India imposed an average weighted tariff of about 11 per cent on imports, which was 8.2 percentage points higher than what the US charged on Indian exports. American exporters face high tariff differentials in some key sectors like agriculture, meat and processed food, which is as high as 33 per cent, followed by automobiles (23 per cent) and others. India could have unilaterally cut some of the more egregious (and frankly, meaningless) tariffs immediately, such as those on alcohol and wines (currently at 122 per cent), certain dairy products like whey, dry fruits and honey, to send a strong signal.

Presently, officials on both sides seem confident of a successful trade deal and if it does indeed result in one, India stands to gain substantially in the long run. The US is India’s largest trading partner and the only major economy with whom it has a trade surplus, a position which India would be keen to preserve. Trade deals are complex to negotiate and finalise, but India would be best served to finalise one without further delay. Given that the world is embroiled in trade tensions with the US and most of India’s competitors may attract a tariff rate higher than India, it should give a competitive edge to Indian firms.

Cutting down tariffs shouldn’t be seen as kowtowing to the US, but as a strategy for improving India’s manufacturing competitiveness and to increase its consumer surplus. A country cannot be a manufacturing powerhouse and be integrated into global supply chains without having a liberal import trade policy. Domestic subsidies through schemes such as PLI cannot compensate for the ill-effects of high tariffs and a restrictive trade policy via non-tariff barriers.

Thus, whatever trade concessions India is contemplating with the US, it should look at expanding these provisions to our other important trading partners as well. One of the important lessons from this episode is that the US is no longer an all-season reliable trading partner and to mitigate random policy shifts from the US in the future, it is imperative for India to hedge its bets. In fact, a strong trade deal with another major economy in this period would have given India more leverage in its negotiations with the US.

With the EU, the UK, Japan and most other major economies reeling under the effect of Trump’s tariffs and searching for diversification options, the time has been ripe for India to seal the deal with these countries. In a fractured and non-rules-based world order (with the WTO becoming irrelevant), it is in India’s interest to get into as many bilateral trade treaties as it can and be part of regional trading blocs. This is also the time when most countries would be willing to compromise on the minor issues in favour of larger market access and India should adopt a similar approach.

With both the EU and the UK (as with the US), the sticking points are India’s high tariffs on automobiles, alcohol, dairy and agricultural products and in return, India wants to be exempt from strict environmental and labour standards. It would behove India to reexamine its protectionist stance and open its markets for competition, and in turn be given market access to some of the most advanced economies of the world.

If India wants to be a world leader, it is time to trust its firms to be able to compete with the best in the world and create an enabling environment for them to do so. The best time for a deal was within the first 100 days of Trump 2.0, the second-best time is any day now.

The writer is an Economics Professor at the Takshashila Institution, an independent and non-partisan think tank and school of public policy